All Honorable Men.pdf (PDFy mirror)

ALL HONORABLE MEN

All Honorable Men

by James Stewart M.artin

Little, Brown and Company . Boston

1950

COPYRIGHT 1950, BY JAMES STEWART MARTIN

ALL RIGHTS RESERVED, NO PART OF THIS BOOK IH EXCEilS «F FIVE
HU^fDRED WORDS MAY EE REPRODUCED IN ANY FORM WITHOUT
PERMISSION IN WRITING FROM THE PUBLISHER

FIRST EDITION

Published September 1950

The materia! from Decision in Gerrrmny by Lucius D. Clay is
used by permission ot Doubleday & Conipafiy> Inc.

Pffhlhhe^ Sfmultaneotfsly
in Canada l>y McCleUand and Stewart IJtnited

PBINTED IN THE iStilTi-D STATES OF AMERICA

To my children,
members of a generatioa
entitled to ask,
**What did you do about it?'

Preface

and Acknowledgments

ANY man has a right to stop after a chain of harrowing experi-
ences and to ask why things happened as they did. Our generation
has had its share of harrowing experiences and therefore the pe-
culiar chain of circumstances that kept mc enmeshed for five and one
half years was not unusual.

It is not simply the rebirth of German nationalism and Nazism
that occasioned the writing of this book, nor even the return to
power of the industrialists who put the Nazis in. These events in
themselves are significant. But more so is the fact that, along with
them, action was aborted on other questions in Germany; questions
of the treatment of organized labor, the improvement of agriculture,
the reform o£ public education, the public ownership or control of
industry, and others just as basic. As the postwar pattern unfolded,
this chain of events in Germany became more and more of a piece
with a larger pattern.

In this book I have tried to tell the story of an important problem
and some of the things that happened when we tried to deal with it.
Though many of the events occurred in Germany, before and dur-
ing the military occupation, they seemed in an increasing degree
to be echoes of something more fundamental that was happening
back in the United States. For whatever reason, the larger pattern is
a repetition of what followed after World War I; but the pace
has been quicker, as though greater powers were moving more
rapidly toward a more catastrophic result

Some people assume that everything is somehow connected with
the cold war, and that any other course than the one we are pursu-
ing has been rendered impossible by disagreements with Russia*

Vlll PREFACE AND ACKNOWLEDGMENTS

This is surely an oversimplification. Disagreements with Russia have
been a major issue for only twenty or thirty years, whereas the
pattern I have traced in this book has been unfolding for a much
longer period.

If this work has any lasting value, acknowledgment is due to
the men and women who staffed the Economic Warfare Section of
the Department of Justice and the Decartelization Branch of Mili-
tary Government, and whose reports of their researches and in-
vestigations brought together the fabric of this story. Mention should
also be made of the many factual materials furnished to us in Ger-
many by the Foreign Funds Control Division of the Treasury De-
partment and the Finance Division of Military Government.

For her help in the preparation of this book I owe a debt of
gratitude to my wife, Caroline Collins Martin, who not only worked
with me during the last strenuous year in Berlin, but also cast a
critical eye on the manuscript at every stage of its development. For
help of various kinds I owe thanks to Johnston Avery, Charles C.
Baldwin, Stringfellow Barr, Scott Buchanan, Norman Bursler,
Francis W* Laurent, Russell Nixon, Alexander Sacks, Peter Weiss,
and others too numerous to mention. Special thanks are due to
Virginia Marino, who returned from Germany to work tirelessly on
every phase of the book from first rough draft to finished page
proofs. Many of the highlights are the result of the thoughtful sug-
gestions of diese people. The faults are my own.

For the necessary time away from other employment to do the
writing, I am indebted to the generosity of Leon and Sonia Mohill;
for time to prepare the manuscript for the press, to my present em-
ployers, the Foundation for World Government; and for research
facilities, to the Library of Congress.

James Stewart Marhn

Annapolis, Maryland
June 6, /950

Contents

Preface and Ackjiowledgments vii

PART I Private Worlds

1 The Fraternity House 3

2 The Termites 17

3 The Heavy Timbers 27

4 The Fraternity Brothers 38

5 Hare and Hounds 50

6 Seek and Find 73

7 The Heavies 82

8 The Cantilevers 109

9 Banks of the Rhine 118

10 The New Hague Convention 131

11 Electric Eels i39

PART II The Lapse of a Policy

12 The Call of the Wild 153

13 The Hollow Squares 166

14 Reducing Exercises 175

15 Sabotage 186

16 The Christmas-tree Economy 205

CONTENTS

17 Double, Double Toil 221

18 The Decline and Fall 235

19 The Nineteen ^5

20 The Hand in the German Glove 264

21 Microcosm and Macrocosm 279

22 Angels and Men
Index

PART I

Private Worlds

CHAPTER I

The Fraternity House

THE day I started to write this we discovered termites in the base-
ment. We were preparing to build a wing on our old house and
found a colony of them in the heavy timbers.

Termites are able organizers, and thoroughly attached to their
way of lifc» The area they occupy is small in relation to the house —
just the heavy underpinnings* They object vigorously to outside
interference from the people who live in the other parts of the
house. They object especially to structural changes, which they are
bound to consider unwarranted. They have two good reasons for
objecting to changes. In the first place exposure to light and air
kills them. In the second place any movement of the underpinnings
ruins the whole structure of tunnels and channels which their
enterprise has built within the framework of the house.

We hated to disturb them. They looked busy and enterprising.
They seemed to want nothing more than a comfortable existence
in accordance with their way of life.

We cleared the termites out to save the house, but I think I know
how they looked at the whole matter. At the end of the Second
World War I spent two and a half years in Germany dealing with
some people who must think pretty much the same way.

My story goes back to 1938, when I was a lawyer recently turned
college professor. I was serving as general counsel and treasurer, as
well as teaching, at St. John's College in Annapolis, the "Great
Books" college. Between reading the famous list of one hundred
great books and untangling the college finances I found only occa-
sional opportunities for the pastime of studying international affairs
and the movements of international business. Certainly I had no

4 ALL HONORABLE MEN

intention at the time of becoming actively involved with inter-
national monopolies or with the Germans who backed Wor]d
War IL

My introduction to the specific problem of the German cartels was
casual, almost accidental. On my infrequent days oS I usually took
a busman's holiday and went to Washington to listen to arguments
in the Supreme Court or to visit friends, most of whom were
government lawyers. Washington was a happy place in 1938. Ex-
cept for a lawyer's usual concern to keep the details of pending
cases confidential, the exchange of fact and opinion between citizen
and public servant was normal The talk with my friends was
about law. I swapped stories about our troubles in carrying a half-
million dollars in debts without throwing the college into bank-
ruptcy, for stories about their troubles in enforcing the Securities
Exchange Act and the antitrust laws.

Throughout this period there v^^ere occasional rumWings in the
press from Thurman Arnold, who was complaining about the
international affairs of some American corporations. These com-
panies were often mentioned in connection with the German dye-
stuffs and chemical trust formed about twelve years earlier, known
as the I.G* Farbenindustrie. Other foreign companies too were
mentioned. Most of them would have been famiHar to constant
readers of the financial pages, but they were not as well known
among the general public as their American counterparts would be.

Later on, during the war, the subject of private international
arrangements among business firms, especially when they took
the form of cartel agreements, got a considerable amount of public
attention. But in those earlier days it was different. Many people
could see no important principle at stake when the government
announced some new antitrust suit against a group of American
and foreign firms. On the surface these international cases appeared
to be no different from any other government lawsuit such as one
involving a monopoly of Wisconsin cheese or California hardwood.

At first the only remarkable feature of the operations encountered
in the international cases was their size and scope. Even judging
from the brief summaries in dispatches from Washington something
in the giant stature of the companies involved, some hint of the

THE FRATERNITY HOUSE

5

vast sweep of their arrangements, reminded one of an ancient Greek
epic. I began to piece together a story from a growing collection of
newspaper clippings. The cases Arnold and his men were talking
about had to do with a series of arrangements dating back for a
decade or so, to 1926 and 1929, when international agreements
among some of the biggest American, British and German firms
had quietly divided up the world.

What I heard and read of these antitrust cases and the new sort
of international brotherhood they implied — a business brotherhood
more solidly built than the "international finance" of past genera-
tions — began to bring other events closer to home. In mid-March
1939, when a group of some of the largest British and German
industrialists gadiered at Diisseldorf to map plans for the economic
collaboration between their two countries, the press barely reported
the meetings. I might have skipped the news items entirely had I
not been already familiar with the subject matter. It was impossible
to overlook the fact that the industrialists who were meeting at
Dusseldorf were from the same groups of companies which ten
years earlier had arranged the three-way split of the world s markets.

The growing conviction that these private international arrange-
ments were important was brought to a head by my encounter with
the German ex-chancelior, Heinrich Briining, early in 1940, during
the period of the '*phony war/* St. John*s College invited Dr.
Bruning to give a lecture about the last days of the German Re-
public and how he had been deposed to make way for Hitler. His
lecture was largely a description, by hindsight, of his own blindness
during the time he was chancellor.

Dr. Briining's story was one of being always a step behind the
events. By his own account he never knew what hit him until after
he had been deposed and was hiding out in the mountains of
Austria. While gangs of Nazis combed the countryside looking
for him, he spent his days reading and for the first time understand-
ing Thucydides's classic history of the Peloponnesian War: a work
that generations of British diplomats have used for a teething ring,
and that Dr. Briining had carried with him from his early youth.
As he reread Thucydides*s story of ancient power struggles, he
suddenly began to realize what forces had been combined against

6

ALL HONORABLE MEN

him in Germany : how under the pressure of administration he had

assented to decrees that weakened the *'equal protection of the
laws," and how large-scale economic forces had made inevitable
some developments he had tried to stem by "voluntary** agreements
among business interests.

Even in the retelling, however, it seemed to me that Dr. Briining
again showed some of his former blindness. The main point in
Thucydidcs's history was the discovery of the large part that eco-
nomic forces play in bringing nations into conflict. Yet, even when
pressed by questions, Dr. Briining showed no particular concern
over the role of the large German industrial corporations. He related
the entire story of Franz von Papen's intrigues, his posting of
gunmen to prevent Bruning from seeing the aging von Hinden-
burg, and the other events of the last days, without once alluding
to von Papen*s conferences with the bankers and the Rhineland
industriaiists who agreed to back Hitler and who put up the
funds. It was, throughout, a story of politics without economics:
a story of a man who had felt that no harm could conne from
temporary dictatorship so long as the laws and the courts pro-
tected civil rights, who showed no feeUng for the ways in which
great economic power and unlimited funds could get around an
inconvenient legalism.

In Dr. Briining's view it was the refusal of groups like the Ger-
man winegrowers to improve their export markets that had cur-
tailed Germany*s export trade and intensified the depression. His
talk would be comparable to an Americanos blaming an economic
depression in the United States on the activities of the Farm
Bureau Federation, with scarcely a word about our industrial firms,
or the level of industrial employment. This was quite puzzling, in
view of all that had happened in the preceding seven years. I knew
that before he was ousted, Dr. Briinings political enemies had
called him the "LG. Chancellor'* — a suggestion that the gentlemen
of I.G. Farbenindustrie had got pretty much what they wanted
under his administration. Yet the man himself was far from pre-
senting the appearance of a person likely to be influenced by or
to have much influence with **big business." He looked a great deal
like Woodrow Wilson. He had risen to the chancellorship from

THE FRATERNITY HOUSE J

the post of Minister of Education, not from the board of the

Deutsche Bank. Even his manner was Wilsonian: a combination of
professorial bewilderment and amazed indignation at the way the
world goes-

This man who had been at the top in Germany when Hitler's
Nazi program was put across had seen too little at the time to plan
any counterstrokes. Later, sitting in a mountain hideout and read-
ing an intelligent account of an ancient Greek war, he had felt
the stirrings of an awareness. Things unknown to him at the time,
things he had not even heard about, had been moving under his
feet. In the end they had dethroned him and plunged his country
and the world into a major catastrophe. Yet still later, in looking
back on the events, he seemed to be missing the point.

I thought at the time that I might be just seeing ghosts. It was
too easy to draw parallels between what had happened economically
in Germany and what could be happening in the United States.
Thurman Arnold seemed to be saying, sometimes patiently, but
more often with an emphasis reminiscent of Donald Duck, that
great forces were at work through the channels of what we in the
United States had regarded as ordinary business. Arnold was
charging that some of the transactions of ordinary business had
crippled productive power in the United States, regardless of the
motives that prompted the individual deals.

If Arnold was right, there was something of serious general con-
cern ia the private arrangements made in the twenties and thirties
among American, British, and German industrialists. Yet Arnold's
boss, Attorney General Francis Biddle, did not appear to be im-
pressed by the noise Arnold was making. By 1941 it seemed even
that Biddle had become resentful of Arnold's constant baying. A
newspaper column by Thomas L. Stokes hinted that Arnold and
Biddle had clashed over the investigation of international agree-
ments between Sterling Products, Inc., a drug firm, and Germany's
I.G, Farben. Stokes said that Thomas G. Corcoran, late of the
Roosevelt brain trust, acting as attorney for the Sterling company
headed by Corcoran*s brother, had prevailed upon the Attorney
General to quash an antitrust prosecution and to accept a * 'consent
decree'* instead. This legal move took government investigators

8 ALL HONORABLE MEN

out of the files of the Sterling firm and closed the curtain on the

details of what had been going on between Sterling and Farben,
in return for the Sterling company's promise to clean house and
behave in the future-

The newspaper stories of the Sterling case were fragmentary.
They stated only that a business arrangement between the two com-
panies had allowed the German firm to keep a tight grip on its
overseas markets in Latin America during the war in spite of a
tight British naval blockade. By arrangement between Germany's
Farben trust and the Sterling firm, drugs manufactured in the
United States had been shipped in bulk to Farben agencies in Latin
America. These German agencies labeled the drugs "made in
Germany" and kept right on supplying their customers while they
laughed at the British blockade.

Early in 1942, Washington announced the creation of a new
agency to deal with the economic side of the war. The Board of
Economic Warfare, consisting ot several members of the cabinet
under the chairmanship of the Vice President, was to have jurisdic-
tion over this agency, which would have a variety of duties con-
nected with ^'economic warfare." The idea of economic warfare
seemed simple enough. Germany and Japan were enemy nations.
To produce war materials and to keep their people alive they had
to get some kinds of goods from territory outside the areas their
armies controlled. To keep them from getting these items, the
nations on our side could resort in the first instance to naval block-
ade. Beyond blockades there were the possibilities of buying up
scarce commodities to keep them out of enemy hands, or of
persuading nonbejligercnts not to sell to the enemy. These ac-
tivities would, of course, connect up with the Air Force's "strategic
bombing" of important production facilities in enemy territory —
the attempt to undermine enemy war production by knocking out
key factories.

One night in February 1942 I had a phone call from Edward H.
Levi, one of the members of Thurman Arnold's staff. He asked
me to leave my post at St. John's College and take a position as
special assistant to the Attorney General. I was to help organize a
unit in the Department of Justice to work with the newly created

THE FRATERNITY HOUSE 9

Board of Economic Warfare. Soon after the Board was set up, Milo

Perkins, its executive director, had written to the Attorney General
asking for reports on the international business ties between Ameri-
can firms and firms in enemy territory, wherever these ties could
be expected to work to the advantage of the enemy. Also Mr.
Perkins had asked for any information that would give details of
industrial plants and industrial production in Germany and Japan.
Such information would be useful to the Air Force as well as the
Board of Economic Warfare.

A short time later, in conversations with Johnston Avery, ad-
ministrative assistant to Thurman Arnold, I found out more of
the details and agreed to join the team. I worked with members of
the Antitrust Division in setting up in the Department of Justice
the Economic Warfare Section, of which I finally became chief. We
set up field offices in principal cities, the largest part of the staff
being maintained at New York, where Robert Wohlforth headed
some twenty or thirty lawyers and investigators. Our object was to
test the possibilities of viewing the enemy through the chinks and
loopholes of international business arrangements.

Once we knew which American companies had agreements with
which Japanese or German companies we knew where to find
engineers and technicians who had visited, and in some cases even
had drawn the blueprints for, plants making synthetic rubber,
synthetic gasohnc, tetraethyl lead, precision ball bearings, and the
hke.

This kind of reporting became known as "bombing" work and
we found ourselves quickly dubbed the "bottleneck boys." Air In-
telligence wanted to find out as much as possible about the industry
in all areas where the Air Forces might be operating. They wanted
to know the relative importance of different plants, partly to help
plan the targets for bombing missions, and partly to help in figur-
ing out what they had hit after the raid was over. We had neither
the staff nor the facilities to make sweeping economic studies of
German industries. But we could find out, from men who ought to
know, which plants producing what materials were likely to be
the "bottlenecks" in German production.

We had no way of knowing where all the coal mines or steel

X6 ALL HONTOKABLE MBN

plants in Germany were; but we did find out that, by agreement
among the biggest producers of precision antifriction bearings,
practically all such, bearings of any importance in Germany were
made in only three factories grouped around the railway yards in
Schweinfurt. We could not locate all the gasoline refineries; but
we did find out that there were only three plants equipped to make
the tetraethyl lead which is necessary for high-octane aviation
gasoline, and we found a man who could draw pictures of ail three*
We did not know where to locate all of the mills producing brass
for cartridge cases; but one of our men did find out that there
were only two ways of making the special high-grade zinc that
goes into this type of brass, both ways being the subject of patents,
and he found blueprints and diagrams of all plants in Germany
capable o£ making this zinc by consulting the files of two American
companies* While other agencies hired economists and technicians
to lay out large studies of the German industrial economy, our
men interviewed men from Du Pont, Standard Oil, International
Telephone and Telegraph, Anaconda Copper, General Motors,
General Electric, and investment bankers and other businessmen
who had been to Germany on what turned out to be "bottleneck"
deals.

As we worked on the search for bottlenecks in German produc-
tion, we began to find a close relation between international business
agreements for the restriction of production and the kinds of
products which were especially critical in wartime. The trouble was
that these international arrangements which pointed up the im-
portance of certain commodities in the German economy had also
resulted in restriction of production in the United States.

Arnold's men found that one company, Rohm & Haas of Phila-
delphia, was not able itself to produce enough transparent plastic
sheets for bomber noses. But because Rohm & Haas of Philadelphia
had Du Pont under a special agreement, as part of a more complex
and wider four-way arrangement involving Du Pont and two
German firms, LG« Farbenindustric and Rohm & Haas of Darm-
stadt, Du Pont was permitted to turn out only a limited quantity of
the plastic sheets. While government expediters were tearing their
hair over slow deliveries, Du Pont was writing to Rohm & Haas of

THE FRATERNITY HOUSE II

Philadelphia that they would have to tell the government about the
agreement unless Rohm & Haas would lift the restriction.

We discovered even more spectacular complications, such as those
in the three-way arrangement among the aircraft-equipment firms,
Bendix of the United States, Siemens of Germany, and Zenith in
England. Under one of these arrangements the American firm in
1941 had stood by an agreement with the Siemens firm of Germany
and forbade British Zenith to grant patent licenses so that the
British Air Ministry could expand production of aircraft carbure-
tors. Almost a year after Dunkerque, Zenith wrote to Bendix
that:

The Ministry suggested they would prefer to manufacture the
carburetors themselves and asked us to waive all our rights in this
matter.

We have told them plainly that we are not prepared under any
circumstances to agree to this or to alter one item of our contract
with you. . . .

You know that we have got to win the war if we are going to
survive and it is because we know we shall win and survive that
we are anxious that post-war business should not be complicated

by departing from the conditions of the contract in the meantime
and under the excuse of war conditions. . . .

As the war went on Senate committees probing production
botdenecks in the United States helped to compile and make
public the records of a staggering number of similar arrangements,
differing in detail but all having the same effect. They were widely
denounced but principally on the ground that they represented
"business as usual" during wartime. Editorials solemnly pronounced
that all such arrangements should be "out for the duration."

These business arrangements operated at focal points where it
was possible to turn on and off the main valves in economic pipe-
lines. It was not long before we found that the arrangement of
valves and pipelines was a two-way affair. Our elation at the dis-
covery that practically all of Germany*s fine optical glass came from
one factory, the Schott Works at Jena, was counteracted by the dis-
covery that under the same working arrangement only one such

12

ALL HONORABLE MEN

factory of any importance existed in the United States, The pin
point for bombing in Germany could be the blueprint for sabotage
in the United States,

As i£ to add point to such thoughts about sabotage, during the
summer of 1942 the Justice building in Washington played host
to the trial of eight Nazi saboteurs who had been landed by sub-
marine to blow up some o£ the key factories in the United States.
Morning and evening the black vans of the United States Marshal
trundled the prisoners under our windows and all day long the
drawn faJinds on a row of windows two stories up and across the
courtyard were a reminder that sabotage in the literal sense of the
term was not just a theoretical possibility.

But sabotage in its literal sense was not the point. As our piece-
meal reports stacked up a picture began to emerge of an enemy that
did not need the services of trained, professional spies and saboteurs.
By agreement between German and American producers of mag-
nesium — needed for aircraft — production in the United States
before the war was limited to no more than 5000 tons per year. In
contrast, Germany in 1939 alone used 13,500 tons and during the
next five years consumed magnesium at the rate of 33,000 tons per
year* Here was a case where American "business-is-busincss" men
had, knowingly or unknowingly, helped a German firm to close
some valves over here, with far more effect than the eight saboteurs
could ever have achieved even if they bad been allowed to do their
utmost* Plants which have never been built are more dead than
plants which have been bombed. A bombed plant may still live in
its blueprints and in the trained labor force that had been operating
it. As the evidence piled up to show German success in negotiating
restrictive arrangements, the contrast between the limited possi-
bilities of cloak-and-dagger sabotage and the greater possibilities of
safely negotiated business arrangements became more and more
heavily underlined with each passing of the Black Marias under
our windows.

Unfortunately, Francis Biddle and Thurman Arnold were still
like stiff-legged fighting roosters with each other. Some of Biddle*s

public remarks, including humorous references to the '^bombing"
work of Arnold and his boys, seemed to confirm our impression

THE FRATERNITY HOUSE 13

that the Attorney General considered what we were doing to be the
product of a somewhat amusing mental aberration.

Finally, combined pressure from the War and Navy Departments
and the War Production Board prevailed in suspending the en-
forcement of the antitrust laws for the duration of the war in all
cases aiTecting industries considered important to the war eifort, AH
that was necessary to stop an investigation or the prosecution of a
case was a certification from Robert P. Patterson, Undersecretary of
War, James V, Forrestal, Undersecretary of the Navy, and John
Lord O'Brian, General Counsel of the War Production Board,
that any attempt to press the case would interfere with the war
effort. This signaled the end of Thurman Arnold's great trust-
busting drive. A short time later Arnold allowed himself to be
kicked upstairs. He accepted an appointment as judge of the Court
of Appeals for the District of Columbia,

With Arnold's departure the Attorney General showed signs of
more serious interest in the evidence of how the German program
of economic warfare had been carried out. Biddle called for more
and more thumbnail sketches of what we were discovering. By the
spring of 1944 the time came to add up the score. In three years,
with a staff of less than sixty people, we had prepared thirty-six
hundred of these snapshots of German economic power in action;
but the Attorney General wanted to know the conclusions of all
these findings. We began to summarize our picture of an enemy
that could survive a military defeat because it did not need or use
military weapons.

This enemy did survive military defeat after World War I. We
had in front of us the story of what lay behind the Ruhr occupation
of 1923, the mna\v3iy German inflation, the Dawes and Young plans,
the Dillon, Read and the Schroder bond issues, the growth of the
Ruhr as the "industrial heart of Europe," Germany's strange ob-
session with heavy industry at the expense of consumer goods —
"guns, not butter."

As we summarized these findings, the Attorney General took
more and more interest, became fascinated, began to speak in favor
of doing something to prevent it all from happening again. He
talked to President Roosevelt. In the fall of 1944 the President

14 ALL HONORABLE MEN

wanted some of these findings publicized, to pave the way for seri-
ous postwar policies to deal with the problem. He wrote his famous
letter of September 6, 1944, to Secretary of State Hull: . • The
history of the use of the LG. Farben trust by the Nazis reads like
a detective story. Defeat of the Nazi armies will have to be fol-
lowed by the eradication of these weapons of economic warfare.*'

We had started out to get a picture of our military enemy and
had found a much bigger enemy, of a quite different sort from
the popular picture of hobnailed Nazis with guns and tanks.

Late in the summer of 1944 Francis Biddle, the man who three
years before had found nothing very important in the Sterling
Products case, and who two years before had been amused by
Thurman Arnold's **bombardment" of Germany, told a Senate com-
mittee what he thought must be done during the occupation of
Germany.

... As we approach the occupation of Germany, we will have
to decide what is to be done with the great German monopolistic
firms. These are the firms that made the contracts in wliich [we]
are interested. The period between the wars was only an armistice
during which the firms of Germany conductt^d war against us.
The British representative on the Inter-Allied Commission Super-
vising German Disarmament stated in a lecture in 1923:

"We, in this country, flatter ourselves that the war ended on
January 10, 1920; a future generation may yet describe the period
in which we are living as an armistice during which the war was
continued by other methods than rifle and howitzer, only to be
resumed in all its carnal horror after the lapse of a few ambiguous
years."

These firms in reality operated as departments of the German
Government. They evaded and violated the peace treaties in order
to build up Germany's military strength. It was the theory of the

German Government that operating under the guise of ordinary
commercial arrangements, these firms could be used to weaken
Europe and America so that when the military war was resumed^
we would lose. Through the techniques of industrial penetration,
they hoped to be able to cripple American production, to gain from
us technical know-how, to conduct espionage upon us, and to
establish centers of propaganda throughout the world.

THE FRATERNITY HOUSE 15

The shadow of the Sterling case moved across Mr. Biddle's
account. Sterling had taken over the American Bayer Company
after World War I and it was what Sterling and I.G. Farben had
agreed to do with the business of American Bayer that had been
the nub of the Sterling Products case in 1941. Mr. Biddle in 1944
told the Senate committee :

LG. Farbenindustrie is the principal combine which has been
used by the German Government to attempt to restrict American

production. It is the successor to the German dye trust which at-
tempted prior to the last war to keep an independent American
industry from developing. The president of the American Bayer
Co., which was owned by the German dye trust, was told by his
German superiors that his accomplishments in holding down
American production before the last war could be compared to the
work of an army leader who had succeeded "in destroying 3 rail-
road trains of 40 cars containing 4?^ million pounds of explosives."

After amplifying these conclusions with further facts he pounded
home his point:

I hope, as the years go by, we will not forget . . . not because I
wish to have individual American companies condemned, but be-
cause these things should not be permitted to happen again. It is
the system under which Germany was able to make these cartel
agreements that must be broken up.

At the present time it is probably inaccurate to speak of separate
combines or cartels in the German economy. They are all linked
together — the munition makers, the potash industry, the machine
trust, the oil industry, the electrical manufacturers, the steel trust,
and the chemical companies. They exist as part of the Nazi govern-
ment. We may expect, however, that when the government falls
they will appear again as separate combines. The companies which
were used as instruments to violate the peace treaties, to dominate
Industry in Europe, to support the Nazi war machine, and to re-
strict production here will then appear in the gui&c of ordinary
commercial firms.

The Attorney General put his finger on the gist of what we

had learned when he underscored the fact that "The pattern of the
activity of these firms was established before the Nazis came to

l6 ALL HONORABLE MEN

power and during the early days of the German Republic. The
German Government and the German people as a whole have never
accepted the doctrines of economic liberalism which run through
American history. The monopolistic firms of Germany have sur-
vived in that country through two wars and constitute a definite
menace to the future peace of the world. As long as they survive in
their present form it will be exceedingly difficult to develop in-
dependent industry in Europe outside of Germany."

He called for action. "1 propose that we break the power of the
German monopolistic firms. The purpose of such a program would
not be to destroy German economic life in its entirety, but to put its
industries into a form where they will no longer constitute 2l menace
to the civilized world. I do not underestimate the difficulties in-
volved in such a program. . . . Such a program cannot be worked
out in any definite form on paper and at this distance from the field
of operations. It will have to wait the period of supervision over
these complies that should come during the occupation period. But
this is a procedure which we did not follow after the last war. It
will not be followed in this war unless we make up our minds to
do it now and prepare for it . . . [We must] have some picture of
what this complicated industrial interconnection is when, after
Germany has been conquered, we sit down and say: What will we
do to break up this industrial domination?*'*

CHAPTER 2

The Termites

THE Battle of the Bulge was just over. The German juggernaut
was grinding to a stop for the third time since 1870. There was still
the possibility that the Nazis would pull out all the horrors of poison
gas and bacteriological warfare for a Wagnerian finale. Looking
ahead to the end of the shooting war, nearly everyone wanted to
know what could be done to keep Germans from starting the same
kind of thing all over again.

The United States was in a mood to propose new ideas. This was
true especially on the economic side of international relations, where
so many troubles begin. Wc were tired of trade barriers, restrictions,
nations playing their cards close to the chest. We were becoming a
little ashamed of having farm "surpluses" and industrial "over-
production" in one part of the world while people starved and did
without things in other parts. The tremendous wartime produc-
tion in our own country^ outstripping all estimates, had itself been
an eye opener. Why not have full production and full employment
in peacetime, too? We were beginning to have some feeling for the
idea that economic restrictions, depression, and war are not un-
related.

Francis Biddle's demand for curbs on the big German financial
and industrial combines was not ignored. The Financial Branch of
SHAEF, General Eisenhower*s headquarters in Europe, asked for
help in planxiing the necessary steps. They were preparing to in-
vestigate the concentration of economic power in Germany. They
wanted to discover how the German leaders were smuggling great
fortunes abroad to provide a future base of operations after the
coming military defeat.

l8 ALL HONORABLE MEN

With the approval of the Attorney General and the Secretary o£
the Treasury, a fe\v of us were formed into a small team sent over
jointly from the Economic Warfare Section of the Department of
Justice and the Foreign Funds Control Division of the Treasury
Department to help the Financial Branch. I was in charge of the
Department of Justice contingent-
It was going to be our job to uncover records, and to find and
talk to the German masterminds who had laid their plans for turn-
ing military defeat into economic victory. We had to find out what
they had done and how they had done it. This was no job of
criminal investigation. That would be for the war crimes staff. We
would not be concerned directly with the intentions or the good or
bad faith of the handful of Germans who had shaped the building
of Hider's New Order. Neither would we be concerned with the
good faith or patriotism of their helpers in other countries.

The men who turned the policy of France before 1940 toward
economic collaboration with the Third Reich have never admitted
that they intended digging a grave for France. The men of the
Federation of British Industries, who in March 1939, at Diisseldorf,
worked out a plan of economic collaboration with the Reichsgruppe
Industrie, have denied any intention of helping to set the stage for
war. Even the German bankers and industrialists who called in
Hitler to bolster their tottering financial empires later denied any
intention to produce what followed. Whatever their story might
be, we had to know how such men came to have power and what
forces determined the use they made of it.

Sitting on the management boards of six large banks and seventy
huge industrial combines and holding companies, fewer than one
hundred men controlled over two thirds of Germany's industrial
system. Their International ties gave them a central location within
the framework of European heavy industry and finance. Long be-
fore the war these companies and their relations to one another had
set the economic pattern for most of Europe. During the Gcrm:^n
occupation of the neighboring countries they had had new op-
portunities to strengthen their hold.

Even before we left the United States it took no powers of divina-
tion to realize that German finance and industry would have made

THE TERMITES 19

the most of these opportunities to set up new vested interests in
hands that would appear to be French, or Dutch, or Belgian, or
Italian. We could expect to be greeted by these "allied" defenders
of the Nazi economic New Order, who would resist our countcr-
nieasures by wailing that they had already "suffered" under the
Germans.

It would have been hard to maintain any illusion about the job
ahead. Finding out what to do wouM be bad enough. Getting
different agencies of our own government to recognize an un-
familiar danger and agree on a course of action might be something
else. We had already been through a preview of such difficulties in
dealing with a case that came up early in the war. I was reminded
of it just as we were leaving for Europe.

On a bleak night in February 1945 I found myself standing with
my small party of mvestigators in the mist at the Washington
airport, waiting to take off. As I stood in the gloom, observing all
the security measures that shrouded our routine departure — the
blackout of the field and plane, the silence, the sudden orders — I
remembered our discovery earlier in the war of how easily the
**secrecy" of ship sailings had been penetrated by the Germans.

In 1940, 1941 and 1942, ships leaving American seaports had had
the same security measures to protect their departure. Yet many of
their broken hulls and water-soaked cargoes had washed up onto
the beaches of New Jersey, Virginia and the Carolinas, where Ger-
man submarines had spotted them within sight of shore. In case
after case, every man on board had been marked before the captain
opened his orders. Though they may not have known it, the cargoes
they carried were reinsured with Munich. The routine system
of placing insurance had put precise information on their sailing
date and destination in the hands of the Germans before the ship
left port.

In the summer of 1941, before there was any Economic Warfare

Section, several trust busters discovered that while the American
public was looking more and more askance at German business
connections, insurance companies doing an international business
seemed to have no such doubts about their foreign commitments.
Insurers of large risks, such as ships, cargoes, and industrial plants.

20

ALL HONORABLE MEN

customarily spread the risk among other companies willing to take
fractional shares. The big insurance and reinsurance companies in
the United States which handle the largest risks have such treaties
on an international basis, through arrangements with the Lloyd's
group in England, or with the Zurich group in Switzerland.

It had long been the custom of the American companies to place
the reinsurance on ships and cargoes with the Zurich group by
cabling information to them so that they could accept responsibility
for a share of the American insurer's risk. The information cabled
would include the name of the ship, the sailing date, the cargo
carried, the destination, and the value of the insured property. One
detail that should have raised someone^s eyebrow, but did not
until the government stepped in, was the fact that the Zurich group
in turn had a reinsurance treaty with the Munich reinsurance pool
in Germany. The result was that during 1940 and early 1941, by the
time a ship had cleared New York or Baltimore harbor headed
for a European port, the German intelligence service already had
the sailing data in hand.

When men from the Department of Justice called a conference
of insurance representatives, the companies agreed to stop sending
such information by cable. But even then no one realized what an
efficient pipeline the Germans had set up. It appeared later that
everyone concerned, both government officials and insurance men,
assumed that sending the information by mail to Switzerland would
be perfectly all right. Nothing was said about stopping completely
the transmission of reinsurance information.

In the spring of 1942, after we had started to set up the Economic
Warfare Section, we found that reinsurance information sheets, or
^^bordereattxP were still going to Switzerland by mail. We also dis-
covered that the reinsurance business^ far from being confined to
ships and cargoes, also covered industrial plants, and more es-
pecially those very large new plants being built for war production,
the ones with security guards at the gates to see that no unauthor-
ized eyes got inside.

In the case of industrial plants, we found that the reinsurance
bordereaux did not account for the full extent of the leakage. The
usual reinsurance treaty on such risks provides that the reinsurance

THE TERMITES

21

group has the right to demand copies of a full report by the in-
surance inspector. This includes blueprints of the installation,
description of the fire hazards and risks, and inventory of the con-
tents of the buildings, room by room. We found that, before 1938,
the Zurich group had asked for the full insurance inspector's report
in only 5 or 6 per cent of the cases. After 1938, the full report was
requested with increasing frequency, until the percentage was
closer to 90.

It had seemed obvious to us that the government ought to stop
this transmission of shipping and industrial information through
Switzerland to the Reich. Unlike the United States, the GtrmsLU
government as early as 1936 had closed off such information about
Germany* As soon as the Germans occupied France, Belgium, and
Holland in 1940 they put a stop to all such transmissions from those
countries. We proposed to have the Attorney General send a letter
to each company warning that transmission of marine and in-
dustrial plant information of this type came within the scope of the
Espionage Act. Issuance of such a letter in the name of the Attorney
General, however, required approval by the Solicitor General,
Charles Fahy. Mr. Fahy would not take this responsibility without
consulting the other interested departments of the government.

At first, no one could believe that Americans were handing the
German intelligence service information on a silver platter. At one
of Mr. Fahy's interdepartmental meetings, Joseph Borkin, then of
the Antitrust Division, slapped down on the table a stack of in-
surance inspectors' reports on various prominent buildings. He had
purchased these from sources open to anyone in the insurance
business without any special "security" clearance. For fifty-five cents
he had the plans of the White House, showing the location of fire
extinguishers and other protective apparatus. For seventy-five cents
he had the plans of a large new magnesium plant. One of the blue-
prints had an arrow pointing at a valve, with the legend: '*Under no
circumstances must this valve be closed while the plant is in opera-
tion, as an explosion would result "

To complete our case, we had obtained from the Office of Censor-
ship copies of insurance bordereaux photographed from the current
week's mail destined for Switzerland.

22

ALL HONORABLE MEN

We got other evidence to show that German insurance companies
were operating at a loss in Latin America, with the help of a Ger-
man government siibsidy, to capture a larger share of the inter-
national reinsurance business. At the same time, to show how in-
formative inspection reports could be to an outsider, another of our
men got from the files of American reinsurance firms similar data
on important European plants, such as the N,V. Philips lamp and
radio-tube factories at Eindhoven, Holland. Months later, the
British Ministry of Economic Warfare thanked us profusely for
copies of this report, even though it was dated 1939. They told us
it had been used in planning the RAF raid on Eindhoven in
December 1942, and in assessing the bomb damage after the
raid.

Still there were objections. Maritime Commission representatives

argued that existing regulations required them to place insurance on
all cargoes. If we put any brakes on the insurance companies, they
might decline to accept the risks, and ship sailings would be de-
layed. Besides, enemy agents could get information on ship sail-
ings and cargoes by going down to the docks and watching the
ships load and depart.

The FBI resented the implication that enemy agents had the rim
of the waterfront. Nearly everyone in the end agreed there was no
sense in wrapping up marine and industrial information and
handing it to the Germans. But the Maritime Commission was
still worried about the possibility of not getting insurance placed
before ships were ready to sail. Other agencies were bothered about
industrial plant insurance. For months they urged us to look for a
solution that would permit the insurance business to be carried on
as usuaL Why not set up an interdepartmental committee of
qualified economists and experts to sJt in consultation with mem-
bers of the insurance industry? They could pass upon specific items
of information, deciding in each case whether the release of the
information would substantially harm the war effort or give help to
the enemy.

We stuck to our guns and insisted that the simplest thing to do
was to tell the Insurance companies that this particular practice had
to stop. Let the people in the business, who were already familiar

THE TERMITBS 23

with conditions in their industry, figure out how they could adjust
themselves to the new circumstances. We felt that government,
wherever possible, should operate through laws, not by setting up
more and more administrative tribunals to command or forbid par-
ticular acts. We pointed out that the Lloyd's group had solved a
similar problem by sending over from England a resident repre-
sentative with power of attorney to make commitments on behalf
of the British companies without sending information out of the
United States.

Our stand for a government of laws, not men, got no support
from the Solicitor General. Mr. Fahy overruled us again, and dis-
cussions continued on how to set up an interdepartmental screening
committee. After several months of this, even men from the in-
surance business began to ask the Attorney General to send his
letter so that they could get the bureaucrats out of their hair. In the
end the letter was sent out, nearly a year and a half after the leakage
had first been brought to the attention of an agency of the govern-
ment, and over four months after we in the Economic Warfare
Section had taken up the case and pointed out what uses the
Germans could be making of the information.

Actually the Germans made plenty of use of it. Nearly three
years later, in the summer of 1945, in the files of the Munich Rein-
surance Company and the German intelligence service, we were to
find bundles of photographs, blueprints, and detailed descriptions
of whole industrial developments in the United States, many of
them obtained through insurance channels. Together they made
up the vital statistics of our war economy.

Nothing was ever done to restrict the circulation of insurance
inspectors* reports within the industry, inside the United States*
A few weeks after Joe Borkin made his dramatic purchases, an
FBI agent appeared at Borkin office in the Justice building and
demanded to know why Joe, who is not in the insurance business,
had been buying up this type of information. The FBI, with its
attention focused on security of information about war plants, had
seen nothing unusual until someone outside the insurance field
showed an interest in information that was freely accessible to any-
one in the business. Like the characters in the Chesterton story

24 ALL HONORABLE MEN

who failed to suspect the mailman, even the G-men had a blind
spot for "security leaks" that occur in what is regarded as the
normal course of business.

This reminder o£ how hard it can be to warn others about a new
kind of danger was a disturbing thought as we prepared that
February night in 1945 to take oif for Europe. How were we going
to fare when we ran up against real demonstrations of German
economic power and ingenuity, where the opposition to change
would be a lot more formidable because it would be carefully
engineered? The answer was not long in coming.

We settled down out of the sky over England into a fog-covered
beehive called Bushy Park, headquarters for the future military
government of Germany, then known as the U.S. Group Control
Council. Brigadier General CorneHus W. Wickersham was in com-
mand and it was on our way to report to him that we got our first
forewarning of opposition to come. Together with Norman Bursler
and Alexander Sacks, I was walking through the hall of a tem-
porary wooden office building when Alex pointed to the name of
Colonel Graeme K. Howard over the office door of the Director
of the Economics Division. Howard was the author of a book,
written in 1940 before the United States entered the war, called
America ctnd a New World Order, an apologia for the Nazi eco-
nomic system that might just as well have been titled You Can
Do Business with Hitler. Now it looked as though we were to be
working with him and with others like him in an effort to recon-
stitute Germany on a new pattern.

Colonel Howard was only the first of many who turned up,
riding into Germany with the future military government, help-
ing to deflect the policy back into old grooves. Colonel Howard, it
is trucj was straightway relieved of his duties before we left Bushy
Park for the Continent; in fact, just after General Wickersham
received a copy of his book from the Intelligence Division. But
trick pennies are the same on both sides. The position of economic
director was filled by the assignment from Washington of Briga-
dier General William H. Draper, Jr., on military leave from his
position as Secretary-Treasurer of Dillon, Read & Company. This
investment banking firm after World War I had taken the lead

THE TERMITES 1$

in floating the German bonds which put German industry in a

position to fight another war.

The men with whom Colonel Howard had already staffed the
Economics Division clearly wanted the occupation of Germany to
be carried out along quite different lines from those decided upon
by the government departments at Washington. Co-ordination
between the plans of the Economics Division and the policies laid
down by Washington became more and more difficult. The constant
carping and the mounting criticism of the official policies became
so open that General Wickersham finally found it necessary to
issue a formal order to all officers under his command, requiring
them to stop their criticism and to support and ''advocate" the
policies laid down in the Joint Chiefs of Staff Directive.

Our special team was assigned to work in the Finance Division
with Captain Norbert A. Bogdan, a charming fellow who had been
a vice president of the J. Henry Schroder Banking Corporation,
a firm in whose files the Nazi banking affiliations were still warm
when the United States went to war. It was a bit of a relief to learn
that our connection was to be only temporary and that, because of
the rather fluid state of our mission, we could soon move over to
Versailles and be assigned to SHAEF, There I was asked to pre-
pare a staff study that resulted in General Eisenhower's sending
out a major policy cable, designated SCAF 239, to the Combined
Chiefs of Staff in Washington, stating that he considered it neces-
sary to investigate further the flight of capital assets which German
industrialists were spiriting out of the country to escape seizure.
Then, even before the reply came back, SHAEF sent out another
cable, this time to the War Department, announcing that in ad-
vance of approval of the whole program by the Combined Chiefs
of Staff our small team of investigators was being sent into the
field. SHAEF asked for additional qualified personnel to be sent
over from Washington to join us.

Our next problem was to map out our moves to follow those of
the armies. Since we were civilians attached to SHAEF, each of our
movements into operational territory had to be cleared down the
chain of command, like a pinball looking for the jack pot, through
army group to army, and sometimes even to the particular corps

26

ALL HONORABLE MEN

and division in charge o£ the area we wanted to cover. We studied
the top-secret operational plans and their allocation of geographical
objectives to difTerent army groups. We projected our movements
so that the centers of our investigations would fall one after the
other along the line of advance of a particular army group. Most
of our investigating in the end was carried out in General Bradley's
Twelfth and Field Marshal Montgomery's Twenty-first Army
Group areas.

CHAPTER 3

The Heavy Timbers

GENERAL Eisenhower's armies between D Day in 1944 and
V-E Day in 1945 slashed an incision across the body of Europe. It
was radical surgery to remove what the Nazis had laid out through
seven years of contriving and five years of miUtary occupation. No
one who saw any part of the operation will be Hkeiy to forget how
the details of life at all levels — bodies, personal effects, bathtubs,
business papers, confidential government files, family skeletons —
all lay exposed in the wake of combat. I remember particularly a
family at Diisseldorf, living on the third floor of a building that
had been cross-sectioned by a bomb. They always looked with
some show of modesty both up and down the street before step-
ping into their open-air bathtub.

In a surprisingly short time, old habits returned, privacy re-
asserted itself, papers were gathered up and tucked away, flowers
and vines grew over debris. But for a while there were no secrets.
In those brief weeks before the incision closed, the Allied govern-
ments overlooked rights of privacy and constitutional immunities
from "searches and seizures." Immediately behind the blade of
Eisenhower's knife came the "T" forces, with their affiliated groups
of specialists, to search for anything and everything that would
throw light on the underlying causes of Germany's military out-
breaks.

This determination to probe and search was typical of the "nevcr-
again" feeling that predominated- Allied policy in 1945 was full of
solemn promises and **morning-after" resolutions. It would have
been hard not to catch some of this spirit as we moved toward
the forward areas to pick up the trail of the economic war lords.

28

ALL HONORABLE MEN

President Roosevelt had said a few months earlier that defeat of
the Nazi armies would have to be followed by complete eradication
of the v^eapons of economic warfare. After World War I there
had been the same "never-again" resolves; and we had already
witnessed a complete cycle ending in failure. Before we left the
United States, the Economic Warfare Section prepared a report
which analyzed the errors of the occupation after the other World
War, and showed the measures that Germany had used to defeat
the occupation and to play the Allies one against the other. I car-
ried a copy of this report with me all the time I w^as in Germany.
By mid-1947, I had already checked off the first twenty pages,
paragraph by paragraph, week by week, in a pattern of repetition.
But in the beginning, in 1945, we were open-minded and some-
times even hopeful about our prospects.

We knew that the economic policies for dealing with Germany
had been prepared at Washington with some understanding of the
ways in which reforms might be defeated. It was our intention to
carry these policies along in the way that miners carry canaries to
detect poison gases. We knew from the beginning of the occupation
that once these economic reforms fell, other reform measures would
not survive for very long.

We were scarcely flying blind when we made the Ruhr our fore-
most objective. The struggle over the Ruhr had brought the first
rnajor breakdown of Allied policy in 1923 when Britain and the
United States refused to back up the French occupation of the
valley; and ten years later the financiers and industrialists o£ that
area had boosted Hitler into the driver's seat.

In recent years there has been so much confused thinking and
pro-German propaganda about the place of the Ruhr in the Euro-
pean economy that we have to keep in mind that this area is im-
portant principally because it has very large deposits of good coking
coal. Its growth as a steel center was a phenomenon of the 1920's,
after World War L The Ruhr became the site of Europe's biggest
steel plants -less for economic reasons than as part of a struggle for
power between Germany and France. In the beginning it was
French Lorraine and not the German Ruhr that was the chief
center of Western European heavy industry.

THE HEAVY TIMBERS 29

From the time Germany took control of Alsace and Lorraine in
the War of 1870, up until the end of World War I, the Germans
organized the steel industry of the combined Ruhr-Lorraine area
strictly on the basis of economic and technical efficiency. They de-
signed the steel plants and coke works to maintain the best balance
of transportation facilities, centers of production, and outlets for
products.

Under this arrangement most of the blast furnaces were near the
ore supplies of German-held Lorraine, and most of the coke works
were near the coal supplies of the German Ruhr* This saved on
transportation because in the production of pig iron three tons of
Lorraine ore are required for every ton of coke. However, because
iron ore is very heavy and coke is light and bulky, they built a few
coke works in the Lorraine near the steel plants, and a few blast
furnaces and steel works in the Ruhr near the coke plants. Thus a
mixed shipment of ore and pig iron eastward from the Lorraine
to the Ruhr, and a mixture of coal and coke westward from the
Ruhr to Lorraine kept the railway trains and locomotives fully
loaded in both directions.

After World War I this efficiency of production yielded in the
face of a German play for power. The Versailles Treaty had re-
quired Germany to deliver to France seven million tons of coal a
year for ten years. France depended upon a vast quantity of coal
from the German Ruhr because the ore beds of Lorraine were too
far from channel ports to make possible a switch to British coal.
So reacquiring Lorraine meant little to France, industrially, unless
access to Ruhr coal went with it.

In 1913, before the war, the Germans had shipped nearly one third
of their entire Ruhr and Rhineland coal output to the iron and steel
plants of Lorraine. During 1922, although the Ruhr output was
approximately the same as it had been in 1913, the deliveries to
France were not even 70 per cent of the 1913 shipments. And that
was the peak year. In 1919, 1920, and 1921, the deliveries totaled
much less than half the 191 3 deliveries.

Six months after the Treaty of Versailles went into effect, the
German industrialists of the Ruhr and Rhineland had completely
repudiated the delivery of fuel as reparations.

JO ALL HONORABLE MEN

A special conference was called to work out a new agreement.

At the Spa Conference of July 5, 1920, the Allied negotiators faced
a battery of German representatives who were destined to figure
prominently in the economic debacle of the late 1920*5 and in the
support of Hitlcr*s rise to power. In addition to the coal magnate,
Hugo Stinnes, and Carl Bosch, slated to head the huge new I.G.
Farben chemical combine, these leaders included Fritz Thyssen
and his Emergency Committee of five other Ruhr industrialists;
Gustav Krupp von Bohlen und Halbach and four other Krupp
directors; Albert Vogler, director general of the Stinnes concern
and member of the Reichstag; and two other noteworthy steel
magnates, Florian Klockner of the Klockner combine and Otto
Wolff, head of the Phoenix Works and the Otto Wolff complex*
In retrospect, it was a Who's Who in the rise of the Nazis^

The Germans were ingenious in their explanation of why they
could not ship more coal. They said they had to have some way of
getting enough money out of it to hasten their economic recovery.
Actually, their financial dif^tress was not caused by a lack of material
goods inside Germany, but by the monetary inflation. The inflation
had been given a shot in the arm when the German government
at the insistence of the Ruhr industrialists paid out hundreds of
millions of marks as indemnities to the iron and steel companies
for their losses in ceding the Lorraine plants to the French. But no
one asked the why of the inflation. German economic distress was
accepted as a fact. The Germans went on to explain that they
needed more food for their undernourished miners to enable them
to increase production.

The Allies gave in to the demands of the Germans. In the Pro-
tocol of Spa issued at the conclusion of the conference, the Allies
agreed to pay one dollar in gold for every ton of fuel delivered by
Germany. The purpose of this payment was to provide more food
as an incentive for the Ruhr miners. This payment was in addition
to sizable loans which the Allies were already required to make to
Germany under the Versailles Treaty. The loans were to make up
the difference between the German domestic price of coal and the
prevailing export price at British seaports. At the time of the Spa
Conference this difference amounted to nearly ten dollars per ton;

THE HEAVY TIMBERS 3I

and the Allies agreed to continue advancing loans at this rate in

addition to the one dollar per ton to feed the miners.

Over the next six months Germany received about one hundred
million dollars in combined payments and loans in return for not
quite eleven million tons of coal. Thus what was nominally sup-
posed to be reparations was in any practical sense tantamount to
an ordinary sale of coal at a very good price.

The shortage of coke shipments to France was not due to short
production in Germany. Germany had suffered no war damage
whatsoever inside its own borders during World War I. On the
other hand, much of the iron-producing territory reacquired by
France had been the scene of the bitterest fighting of the war.
More people know Verdun as a battlefield than as a steel center.
Nevertheless, it was the breakdown of German deliveries of coke
to France, not failure of the French to rebuild their factories, that
stopped French iron and steel production after 1920.

The German Ruhr magnates were converting the greater part o£
Germany's coal production into coke for new German plants in
the Ruhr. They were building an entirely new complex of iron
and steel plants to replace those ceded to France after the war.
The new plants in the Ruhr were to get the bulk of their ores from
the high-grade deposits of Sweden, Spain, and Newfoundland. The
extra costs of the long overseas haul were offset by German gov-
ernment subsidies and indemnities.

The purpose of this German strategy was destined to become
clearer as the postwar adjustments of the 1920*5 unfolded. During
the first years after the war, when coal was scarce in Europe, the
German coal producers held the whip hand over France. Since
the cost of coal accounted for three fifths of the cost of French pig
iron, whoever controlled the cost of coal could control the competi-
tive fate of French iron and steel. German coal producers, who
also sat on the managing boards of the German state railways and
the new steel firms, arranged exorbitantly high freight rates over
the German railways from the Ruhr to the French border. At the
same time, drastic cutbacks in ore importations from France pro-
duced a further temporary reversal for the French industry. The
new German plants got a good head start.

32 ALL HONORABLE MEN

In spite of the relief afforded by the Protocol of Spa, the German
government and industrial leaders continued to drag their feet.
On January ii, 1923, four years after the Treaty of Versailles went
into effect, coal deliveries broke down. French and Belgian troops
were sent into the Ruhr to compel deliveries of coal and coke at
the rate required by the Treaty, which was only about 60 per cent
of what Germany had been in the habit of shipping into the same
area before the war. The German coal and steel industrialists coun-
tered with new threats and demands. The German miners staged
a sit-down strike. To keep up production in factories outside of the
occupied Ruhr area, the Germans imported British coal through
the port of Hamburg. At the same time, the German government
appointed a coal commissioner to conserve coal. The commissioner
announced that with suitable economics the stocks of coal in un-
occupied Germany would last for nearly six months. Total imports
of British coal into unoccupied Germany in March 1923 alone
amounted to two million tons. On August 11, 1923, the British
sent a note of protest to France complaining that the Ruhr occu-
pation was hampering European recovery^

On August 12, 1923 Gustav Stresemann became Chancellor and
Foreign Minister. To settle the matter of the Ruhr occupation he
held a conference with the same group of industrialists who, a few
years later, were to take the lead in forming Germany's largest iron
and steel combine, the Vereinigte Stahlwerke or United Steel
Works, with the help of loans from the United States. The ques-
tion in the minds of the German industry men was how to establish
a superior bargaining position before receding in the face of French
insistence. One of the steel men, Otto Wolff, stated that Germany
could indeed co-operate with French industry, but that France
must first place at Germany*s disposal the money to help recon-
struct her economic life.

The occupation of the Ruhr resulted in a deadlock. The German
government claimed there was no money in Germany to pay the
Ruhr mineowners for the coal they were expected to ship. The
mineowners lamented that they would be bankrupt if they could
not obtain payment for their deliveries to France.

The deadlock was broken when the United States stepped in

THE HEAVY TIMBERS 33

and offered the Dawes Plan, which called for balancing the Ger-
man budget and an initial loan of two hundred million dollars to
stabilize the German currency. The plan was approved by the
Reichstag on April 16, 1924. The delivery of "reparations" was re-
sumed for a time, while the Germans moved on to the next stage
of their resistance. At the very time that the Germans were pro-
testing inability to meet reparations, the entire country was quietly
rearming under the very noses of the occupying powers.

After several years, when coal had again become plentiful on the
European market, the German groups had already developed an-
swering moves to block any attempt of the French or the Belgians or
the Luxembourgers to compete with the new German setup. During
the years of coal scarcity the German steel producers took the lead
in organizing an international association to guarantee the steel
industry of each wxstern European nation a fixed share in the
export markets for all types of steel products.

In return, the steel makers of each country agreed to limit pro-
duction to a fixed quota, with cash penalties for production or
exports beyond the agreed amounts. This association, known in
German as the Internationale Rohstahlgemeinschaft, in French as
the Entente Internationale de TAcier, in English as the Interna-
tional Steel Cartel, with its offices in a stone building two blocks
off the Grand'Rue in Luxembourg, became the privately organized
policing system that governed the steel trade of the world from
1926 to 1939. Within a very few years after its formation, the
Germans ran the cartel and could shape its policies to meet their
demands.

These were some of the main steps by which a small group of
German industrialists, deriving their power from ownership of
coal mines, steel works, and chemical plants in western Germany,
contrived to avoid the economic consequences of Germany's defeat
in World War I. It is true that the industrialists did not take matters
directly into their own hands. The steps themselves had to be taken
by governments. The Treaty of Versailles was an act of the Allied
governments, representing their combined judgment of how the
issues of World War I ought to be decided. But what actually
happened after that was dictated not so much by the diplomatic

34 ALL HONORABLE MEN

treaties of governments as by the bargaining of powerful business
groups. The German businessmen were interested first in their
companies, not in national political obligations. The German steel
companies whose Lorraine plants had been turned over to FrancCj
and the coal producers whose output was to be shipped to France,
were not impressed by the argument that Germany as a nation
somehow "owed" France as a nation some recompense for war
damage. If they gave up their companies' property for a national
debt, it was their balance sheets that showed the loss.

The horizontal separation of private interests from government
policies went even further. The struggle of the interwar period
was not simply a clash between French interests on the one side
and German interests on the other. During the development of
the Ruhr-Lorraine industrial complex, like-minded industrialists
in France and Germany had become directors of jointly owned and
jointly controlled financial, industrial, and distributing enterprises.
In many cases common views on questions of economic organiza-
tion, labor policy, social legislation, and attitude toward government
had been far more important to the industrialists than differences
of nationality or citizenship. After 1870 the interdependence of the
French and German iron and steel industries led the owners to
work together despite national differences, although the private
activities of the French owners were, in many instances, in direct
opposition to French public policy. It is curious to note that only
the French appeared to have this conflict between public policy and
private activities. On the German side, complete co-ordination seems
to have been preserved between national and private interests;
between officials of the German Republic and the leaders of Ger-
man industry and finance.

During World War I the de Wendels, the influential French-
German banking and industrial family which headed the French
wing of the International Steel Cartel through their Comite des
Forges and whose members had sat in the parliaments of both
France and Germany were able to keep the French army from
destroying industrial plants belonging to the German, enterprises
of the Rochling family. These plants were located in the Briey
Basin, a Lorraine ore field then in German control.

THE HEAVY TIMBERS 35

The Rochling family, with their powerful complex of coal, iron,

steel and banking enterprises in Germany, has for generations
played in close harmony with the de Wendcl family. For a century,
the descendants of Christian Rochling have dominated the in-
dustry and commerce of the Saar Basin. It was Hermann Rochling
who arranged the return of the Saar to Germany in the plebi-
scite of January 1935 by organizing the Deutsche Front, which de-
livered 90 per cent of the votes to the Nazis. Though seventy-two
members of the Rochling family have survived two world wars
and are still active in the business of the Saar today, two other mem-
bers of the family, Hermann and his brother Robert, deserve a
special place in history. During World War I, Hermann, a cavalry
captain in the German army, and Robert, a major, had been put in
charge of production in the Briey Basin. After the war, when the
brothers Rochling moved out of the areas which had to be ceded to
France under the Treaty, the two of them carried away bodily a
couple of large steel plants.

Conceiving this grand larceny to be something in the nature of
a war crime, the French government tried the brothers Rochling
in absentia and sentenced them to forty years in prison* But the
German government never would give up the Rochlings to the
French. For the next twenty-two years the brothers were under
this cloud as far as the French government was concerned. On the
other hand, as far as the French steelmakers* association, the
Comite des Forges, and in particular the de Wendels who headed
the Comite, were concerned, business as usual — or in this case,
business as unusual — prevailed. In the end even the French gov-
ernment weakened for business purposes, though the war-crime
sentence remained. When it came time for France to build its
impregnable Maginot Line, who should be called in to supply
steel and technical assistance but the German firm of the brothers
Rochling. If the French behaved in this case as did the Americans
during World War II in the case of insurance coverage on war
plants, they doubtless placed plenty of guards to protect the security
and secrecy of the Maginot Line construction from the prying eyes
of the general public while the blueprints rested safely in the hands
of the only people to whom they mattered: to wit, die enemy.

30 ALL HONORABLE MEN

Now comes the outbreak of World War IL The French army

marching into the Saar during the "phony war" period in 1939,
received orders not to fire on or damage the plants of the "war
criminals," the brothers Rochling. In 1940 came the blitz and the
fall of France. The Vichy government passed a decree exonerating
the Rochiings and canceling their forty-year prison sentences. In
1945 came the bh'tz in the other direction. As we were starting out
to round up the key industrialists, the Rochiings fell once more into
the hands of die French; but this time it was the French army,
acting in its role of representative of French public policy. Again
the order of the day was "the Rochiings, war criminals." In 1947,
Hermann Rochling was tried by an international court in the
French zone and convicted of v^aging aggressive war. He was
sentenced to seven years imprisonment. Robert had died before he
could get his criminal record in order; but since there are still
seventy-two Rochiings to go, it is not yet possible to write the final
chapter to their history.

In 1945, in contrast with the close w^orking arrangements kept
through at least two wars by the Germans and the French iron
and steel groups, the French public poUcy seemed still to have a
healthy dislike for any setup that woald leave German industry
dominant in western Europe, French officers like Rene Sergent,
who became head of economic and financial affairs for the French
group in the Control Council at Berlin, seemed to distrust the in-
tentions of Germany's industrial leadership* The Germans, accord-
ing to Sergent, had estabUshed quite a record for insisting upon
and carrying out measures to prevent the Allied powers from ren-
dering Germany harmless. Of course, no one should expect a
German political or business leader to want to be harmless. Most
Germans who meant anything in German industry or politics
after World War I considered it an act of patriotism to evade the
terms of the Versailles Treaty. In fact, in the years after Versailles,
the German courts would entertain prosecutions for the crime of
high treason against any German citizen who concerned himself
with the execution of the Treaty *'in such a way that a foreign
power was advised of infractions."

Clearly, the Germans themselves would expect to be supervised

THE HEAVY TIMBERS 37

and watched. It would be a point of honor, as well as self-interest,

to defy detection, and to camouflage or conceal their intentions.
From our discoveries during three years with the Economic War-
fare Section, we had already narrowed down the list of Germans
who carried the major responsibility for what had happened. The
list was impressively small; for somewhere among a group of not
jnore than a hundred men were those who had done the lion's share
of the planning and had carried out the world-wide negotiations
that made the economic preparations for war a success. Still, even
a list of a hundred important individuals, controlling sixty or
seventy of the biggest companies, was too large for pinpoint inves-
tigation by our small crew- Were there some five or ten or twelve
men among these who stood head and shoulders above the others
either in knowledge or in degree of responsibility for the German
efforts? Perhaps the records of the International Steel Cartel at
Luxembourg would furnish clues to help us concentrate our atten-
tion first on a few individuals and a few companies in Germany.
But Luxembourg was "liberated'* territory. One could not simply
walk in and open up filing cases and take a look.

In March 1945, Luxembourg as yet had no government of its own.
The Grand Duchy was under the protection of an Allied Military
Mission, headed by an American, Colonel Frank E, Frazer. To get
permission even to negotiate with the Luxembourgers for a look
into the records^ we had to show how the inquiry would contribute
toward investigations in Germany itself, which fell within the
mandate of General Eisenhower*s cable to the Combined Chiefs
of Staff, SCAF 239. It was a hen-and-egg paradox. To get what
we needed from the Luxembourg records, we had to know what
we were going to find out in the Ruhr. The Ruhr at the moment
was bulging with Wchrmacht units.

CHAPTER 4

The Fraternity Brothers

ON April 14, 1945, the Grand Duchess Charlotte returned to re-
sume her constitutional sway over the Grand Duchy of Luxem-
bourg. This little Graustark or Ruritania with a thousand square
miles of territory and three hundred thousand inhabitants, squeezed
in between Germany on one side and France and Belgium on the
other, is a maze of contrasts from almost any standpoint. Its official
language sounds hke Flemish with a dash of French, and looks
like German. People on the street thank you with a mixed French-
German "merci, viel danf(* or "merd viel mahir But most of the
people who speak this mixed language are more violently anti-
German than their French neighbors to the west.

In contrast with the unproductive German terrain immediately
to the east, which looks exactly the same so far as soil and contours
are concerned, most of Luxembourg, and especially the northern
half, might be called fiercely agricultural, with very high produc-
tivity. Even though the northern half of the Grand Duchy was
overrun and most of its farmhouses destroyed during the Battle of
the Bulge, while the German territory to the east was practically
untouched, Luxembourg's agriculture bounced back immediately
after the second Hberation early in 1945. Within two years Luxem-
bourg was 90 per cent self-sufficient in food. The Germans across
the line, after two years, were still pleading for food to stave off
starvation.

The Industrial Revolution had come to Luxembourg with the
discovery of domestic deposits of minette ore in 1870. This was the
same year in which Bismarck's armies snatched the minette ore
fields and other resources of Alsace-Lorraine from France on behalf

THE FRATERNITY BROTHERS 39

of the growing Reich. But for many years Luxembourg's industry
kept its independence from German control. The largest steel
firm, the Acieries Reunies de Burbach-Eich-Dudelange, known as
"Arbed/* even reached into German territory. Just before World
War I, Arbed got control of enough coal-mining properties in Ger-
many near Eschweiler in the Aachen Basin to assure a full supply
of coking coal to the Luxembourg mills. Arbed next established
the largest steel cable works in Europe, the Felten & Guilieaume
Carls werk, at Cologne on the Rhine. Between the two wars, how-
ever, this independence had become obscured while Luxembourg
played host to the steel cartel.

A week before the Grand Duchess returned, a small group of
our men from SHAEF headquarters finally got permission to enter
Luxembourg and negotiate a trip through the files of the Inter-
national Steel Cartel. Though they wanted to look for the particu-
lars of German control and to identify the Germans who had been
pulhng the strings since the cartel was organized in 1926, our men
had to proceed carefully because nothing could be done without
the voluntary permission of the carters officers.

Quite by accident, our team arrived on a Saturday, and simul-
taneously with a visit by General Eisenhower. The officials of the
steel cartel somehow gained the impression that General Eisen-
hower's visit had been made especially to lend additional high-level
sanction to the visit of the Department of Justice officials attached
to SHAEF. Hector Dieudonne, secretary of the cartel, and the other
top cartel officials, who were heading for the country over the week
end, told Eric Conrot^ the office manager, to "give every assistance**
to the gentlemen from SHAEF. M. Conrot unexpectedly took the
instructions quite literally. He opened up all the filing cabinets in the
office of the cartel and invited the gentlemen from SHAEF to make
themselves at home for the entire week end. They did.

It is not hard to imagine the hair-pulling among the top officials
when they returned Monday morning. They found an extremely
weary and sleepless investigative crew sitting among a mass of
folders from which an index had been compiled of close to four
thousand documents. The investigators expressed their gratitude and
said they would very much like permission to make photostats of

40 ALL HONORABLE MEN

the four thousand documents. With a great deal of grinding of teeth
and scarcely restrained mutterings at M. Conrot's misunderstanding
of diplomatic language, they finally gave their consent, but not with-
out making a protest that their hospitality had in some way been
abused by what amounted to "police" methods.

The four thousand documents had opened up a panorama of
international ties among all the major steel firms of the world,
including the details of their working relations with the Germans
from the time the cartel was organized.

While the crowds were milling about in front of the Royal
Palace in a tremendous demonstration over the return of the Grand
Duchess, M. Aloyse Meyer, managing director of the Arbed steel
combine, returned quietly to the city of Luxembourg from Ger-
many. He had left when the Germans left, but came back with the
explanation that he had been kidnaped.

M. Meyer for years had been more than the managing director
of a large steel enterprise. Ever since 1928, he had been permanent
chairman of the International Steel Cartel, and during the German
occupation he had been appointed by his long-time German busi-
ness associate, Ernst Poensgen, to be the leader of the steel industry
Wirtschaftsgruppe in Luxembourg. Pocnsgen, principal figure in
the United Steel Works of Germany, had played the leading role
in establishing the International Steel Cartel in 1926. During
World War IT, Poensgen was appointed to head the steel in-
dustry association, one of the main divisions of the Nazi Reichs-
gruppe Industrie, an officially sanctioned national association of
manufacturers. It was not surprising that he chose his Luxembourg
associate, M. M(^yer, to handle the aflFairs of the Wirtschaftsgruppe
in occupied Luxembourg.

Upon the occupation of Luxembourg by the Germans in 1940,
the Arbed firm had not been taken over directly by the Germans,
but continued to function under the direction of Aloyse Meyer
throughout the occupation. The other two Luxembourg steel com-
panies, Hadir and Rodange, were taken over by the Germans when
the managers r<! fused to collaborate.

After the liberation of Luxembourg, nineteen men who were

THE FRATERNITY BROTHERS 4I

department chiefs, production men, and engineers of Arbed were
dismissed for collaboration, while Meyer remained as head of the
firm. The official attitude was that Meyer had become a hero by
keeping his firm intact during the war and thereby preventing the
removal of Luxembourg workers from the local steel plants to
Germany for work in the German plants. Some officials even
alleged that the Arbed management had arranged to slow down
production and thereby sabotage the German war effort, but the
comparative figures for Arbed and the other two Luxembourg
firms did not bear this out. Actually^ limits by the Germans on
coal exports accounted for the same reduced production rate in all
the Luxembourg mills.

What the Luxembourgers chose to do with Aloyse Meyer did
not change what was on the papers in the files of the steel carteL
It was not necessary to wait for photostats of all the thousands of
documents to realize that we now had an enlarged picture from
which to work. Here was something that had gone beyond mere
German resistance to the occupation measures of the Allied powers
after World War 1. It was a concrete example of hov/ leading
German manufacturers had gone about the job of recapturing
control over industries and markets and making Germany the
"industrial hub of Europe." This was not resistance, but a counter-
attack that included enlisting the help of industrialists in other
countries. Here again the step-by-step history threw some light on
what had happened, but at the same time raised questions about
why the others let the Germans get what they wanted.

The mid-twenties were remarkable for German industrial com-
bination. They marked the formation of the United Steel Works
in Germany, as a combination of the four biggest steel producers*
Ernst Poensgen, Fritz Thyssen^ Otto Wolff, and the others who
drew this combine together had managed to get over a hundred
million dollars from private investors in the United States. Dillon,
Read & Company, the New York investment house which brought
Clarence Dillon, James V. Forrestal, William H. Draper, Jr., and
others into prominence, floated the United Steel Works bonds in
the United States behind a glowing prospectus which declared that
the United Steel Works Corporation (Vereinigte Stahlwerke) "will

42 ALL HONORABLE MEN

be the largest industrial unit in Europe and one of the largest

manufacturers of iron and steel in the world, ranking in produc-
tive capacity second only to United States Steel Corporation/' The
formation of United Steel gave its management tremendous power
in Germany: enough to carry through without delay the organiza-
tion of the German domestic steel cartel, and to guarantee the
"good behavior*' of all German steel companies in their agreements
with foreign firms. In 1925 the LG. Farben chemical combine was
formed by six of the biggest German chemical producers and
the next year the International Steel Cartel was created through a
private international treaty or working arrangement among the
principal steel producers of the world.

The events were not unrelated. All of these organizations had
a number of directors in common and were part of a privately
managed "rationalization'* scheme for controlling the basic indus-
tries of Europe and regulating the international trade in the products
of the basic heavy industries. In the case of steely the motives of the
German groups were clear. Cut off by political boundaries from
organizing a German-controlled steel industry based on the most
efficient use of resources, the German managers who formed the
new combines aimed to improve their commercial position by
establishing control over the market. If they could not have economy
in production, they could still run a profitable business provided
they could control domestic and international marketing conditions
by agreement. They could not afford to let possible competitors
in France, Belgium, Luxembourg, Britain, or the United States
start a struggle for markets. These others would have advantages
based on more efficient production or distribution facilities, espe-
cially while the Germans were setting up their plants designed to
use ores from far away points overseas.

The loans which the bigger operators got from Britain and the
United States to put them on their feet after the inflation also
enabled them to pay prices far above the market values to buy out
troublesome competing firms. In effect, the foreign loans and
German government subsidies allowed the leading companies, such
as United Steel Works, Mannesmann, Krupp, Good Hope and
Rochling, to substitute private regulation and elimination of com-

THE FRATERNITY BROTHERS 43

petition for the technical efficiency they had lost when their plants in
Alsace and Lorraine v-^nt back to French control after 191 8.

After combinations like United Steel and I.G. Farben had pulled
together under common control a great proportion of the existing
capacity, they built still more plants and added more machinery.
But the amount of goods manufactured did not grow in anything
like the same proportion. At the height of the boom, in 1928, the
w^hole German steel industry was running at only a little over two
thirds of its capacity. In other fields of heavy industry, actual pro-
duction was as low as 10 per cent of the instalJed capacity. In the
construction of locomotives, a field monopoUzed by the Borsig and
Henschel combines^ output at the height of the boom was only
5 per cent of capacity. Later, in World War II, when Henschel
specialized in "Tiger" tanks and 88^millimetcr guns, the formerly
idle capacity came into its own.

Unfortunately, the bondholders who put up the money for these
increases in heavy industrial capacity never got the benefit of the
supposed "strength" and ''soundness'* of the companies. The low
output in relation to the large capacity meant a huge unpaid debt
to foreign investors who had bought the bonds. The companies
were technically bankrupt until saved by government subsidies;
but the subsidies w^ere arranged only after payments to foreigners
had been forbidden by foreign-exchange regulations. After piling
up a record like that, a private citizen might have trouble getting
money even from a loan shark.

From a long-run standpoint, the records indicated that the or-
ganization of the German iron and steel industry was wasteful. A
commission known as the Enquete Ausschuss had been appointed
by the German government early in the i930*s to investigate condi-
tions that had led to the industrial depression- The commission
had found that the steel industry was clumsily put together and
Was overexpanded in proportion to Germany's light industry and
consumer-goods production. By fixing their sights on control of
domestic and international markets, instead of meeting the eco-
nomic needs of German industry for iron and steely the German
steel industry had put itself into a position where control must be
maintained over international markets or the industry must go

44 ALL HONORABLE MEN

bankrupt* But German steel products could be distributed m inter-
national trade only 50 long as no foreign competitors undercut
Germany by competitive selling.

The Nazi Economic Ministry later gave due recognition to Dr.
Poensgen for his services to the German iron and steel industry
through his organization of the national and international steel
cartels. October 17, 1941, Poensgen's seventieth birthday, was cele-
brated in the Stahlhof at Diisseidorf as "Ernst Poensgen 's Great
Day." As the Deutsche Bet-gwerJ^s-Zeitung reported, so many lead-
ing personalities of business and industry had seldom been seen
together. The Nazi Economic Minister, Walther Funk, was per-
sonally present to award Poensgen the Eagle Shield o£ the Reich
which put him, as Funk said, ''into a class with men like Robert
Bosch, Carl Duisberg, Emil Kirdorf, Albert Pictsch and Krupp von
Bohlen und Halbach " Funk paid tribute to Poensgen *s contribu-
tion in organizing the cartels which he said 'Svill have great impor-
tance in the reconstruction of Europe after this war." Concluding,
Funk said: ''The Fiihrer has ordered me to present to you the
Eagle Shield as a special tribute to an tconotnic leader who has
performed extraordinary services in arming Germany.'*

When the first international agreement was signed on Septem-
ber 30, 1926, between leading iron and steel producers of France,
Belgium, Luxembourg, the Saar and Germany, all the sponsors of
the cartel had joined in declaring that it was a first step in the
formation of an "economic United States of Europe/'

Dr. Poensgen and his helpers, however, had more immediate
interests. They had contrived the original terms of the organization
so as to play upon two strong motives: fear of German competition,
even though the German mills would have been able to compete
only through money borrowed in the United States and Britain;
and the desire of the "leading" firms in each country to enlist the
power of German industry as an ally in crushing their own domes-
tic competition. Membership in the cartel was not open to individual
companies, but only to the national associations to which they
belonged. These associations bound themselves to limit their entire
national steel production and the total volume of sales in domestic
and international markets. Domestic sales were controlled by all

THE PRATERNITY BROTHERS 45

parties agreeing not to undersell in each other^s countries, so leaving
the member companies only the nonmember companies within
their own boundaries as competition, to be eliminated by drastic
short-term price cutting or by purchase. The international markets
seemed secure because, although the charter members in 1926
accounted for only 30 per cent of the world's ingot steel produc-
tion, they accounted for nearly two thirds of the world's exports.
All members agreed that in foreign markets they would not under-
sell each other but would undersell any nonmember in order to
drive him out of the market.

In order to get the cartel started, the German group at first ac-
cepted a production quota ior themselves which they considered
very low in proportion to their actual steel capacity. The German
quota for the first year was a little over 40 per cent of the tot2L\ ior
all five groups. The cartel had been in existence only a few months,
however, when Paul Reusch, chairman of the German national
group, and also a director of the Good Hope steel works, said that
Germany would try to get an increase in its quota and that the
original low quota had been a concession to get the agreement
established.

Under the cartel agreement, excess production and sales by any
national group, beyond the established quota, was subject to a
penalty at various rates up to four dollars a ton. Any fines paid
by members for producing and selling too much were to be used
as a fund out of which to recompense cartel members who pro-
duced and sold less than their allowable quotas. This provi-
sion seems to have lulled most of the members into a com-
fortable and careful state. Most of them stayed well within their
quotas.

But not so the Germans. In the first year of the cartel's existence,
the Germans paid fines amounting to 110,038,000, covering excess
production of 3,372,000 tons. This excess tonnage alone was almost
equal to the entire annual output of the Belgians. The fines paid
by the Germans accounted for 95 per cent of the total penalties
incurred by all the original cartel members during the first year.
The advantage to the Germans showed up in later years. With
their greatly expanded capacity they next threatened to disrupt the

46 ALL HONORABLE MEN

organization unless the quota scheme was revised to give them a
higher quota. Before the first year was out, the Germans, in addi-
tion to a higher quota, got an agreement that 72 per cent of their
quota should be regarded as production for German domestic con-
sumption, on which the penalty for excess production was to be
only half that established in the 1926 agreement. In September 1927,
the penalty on excess production for domestic consumption was
again cut in half. The full penalty was to be paid only on the
28 per cent of German output which was to be regarded as pro-
duction for export.

In the second year of the cartel, 1927, German steel production of
16,311,000 tons was nearly 4,000,000 greater than in 1926. France
in the same year decreased production by 54,000 tons, down to a
total of 8,403,000 for the year. From this point on, Dr. Poensgen's
^^extraordinary services in arming Germany" continued with the
same kind of success. Alternating threats and concessions con-
sistently increased the ability of the German group to control quotas
and limit the production of the non-German members almost at
wilh Small wonder that when the International Steel Cartel was
first set up, in September 1926, just three weeks after Germany had
joined the League of Nations, a member of the Reichstag, Dr.
Reichert, declared that, by means of this agreement, "Important
consequences of the Versailles Treaty can be mitigated." As we
wound up our work in the files of the Steel Cartel, we could see
that this arrangement had gone very far indeed in "mitigating the
consequences** of the Versailles Treaty.

By 1938, about 90 per cent of all iron and steel shipped in inter-
national trade was under the control of the International Steel
Cartel The membership by that time had been expanded to include
the major steel producers in Austria, Poland, Czechoslovakia, the
United Kingdom, and the United States, but the Germans were
still running the show. What could one of the non-German groups
hope to get out of membership in the cartel?

The American firms went to some legal risk in order to join*
Among the documents we photostated at Luxembourg were mem-
oranda of agreements in which it was said that the American
concerns were unable to sign the formal agreements for division

THE FRATERNITY BROTHERS 47

o£ territories and restriction o£ markets because of the antitrust
laws, but that a verbal agreement to the same effect had been
secured.

The records showed that as the activities of the International
Steel Cartel expanded it had become obvious to the Europeans that
without the co-operation of American steel companies they could
not hope to maintain their control over international markets.
The tremendous productive power of the American steel industry
was the problem. If American producers were free to sell steel
products in international trade at competitive prices, instead of
complying with the fixed prices and limited marketing areas
worked out by the cartel members, then every time the others got
the world price up to a comfortable and profitable level the Ameri-
can outsiders could undercut and cash in^

The European group did not really need to worry, however.
The three biggest American producers, United States Steel, Bethle-
hem, and Republic, had their own reasons for wanting to join. From
their standpoint, the co-operation of the European producers in
blocking or policing the activities of American independents would
help maintain and increase the Big Three's control over the
American domestic market. The independents, wherever they tried
to do business in the rest of the world, would find themselves
hemmed in by the "one for all and all for one" spirit of the
cartel members, and by the "difficulties*' they would encounter
in the form of foreign government regulations and red tape.
A little of this experience might make the independents more
amenable to "reason'* where the organized firms were concerned;
and this would be reflected even in their behavior at home. But
first, the Big Three had to catch their rabbit.

The clause in the international agreement which presented the
greatest stumbling block to the American group was Article IV
of the export agreement, which read as follows:

The contracting parties accept the responsibility for the engage-
ments undertaken under the agreement both for themselves and for
outsiders in their repective countries, for the present as well as
for the future. They shall be debited with these outsiders* exports
and shall be responsible for the payment of penalties in respect of

48 ALL HONORABLE MEN

excesses. Both contracting parties shall establish a list of the present
outsiders in their territories and shall report as soon as possible
about the appearance of new outsiders on their markets.

Up to the end of March 1938, only 58 per cent of the American
exports in the heavy steel group were made by members of the
Steel Export Association. Since 42 per cent of the exports were
made by outsiders, the members of the Steel Export Association
had refused to accept responsibility for keeping all American
exports within the quota allotted by the cartel to the United States.
By June of 1938, however, the position of the American insiders had
progressed to the point where they felt it ^vouki be possible to give
partial guarantees of the good behavior of the Amxrican outsiders.

At a meeting held in Paris on June 14, 1938, an agreement was
reached between the Joint Co-ordinating Committee of the Inter-
national Steel Cartel and a delegation from the Steel Export Asso-
ciation of America, representing United States Steel, Bethlehem,
and Republic. At this meeting the Big Three accepted uncondition-
ally the terms of the 1937 agreement which had brought the British
Iron and Steel Federation into the cartel. The Steel Export Associa-
tion of America agreed, on behalf of United States Steel, Bethlehem,
and Republic, not only that these three firms would abide by the
quota agreements of the cartel, but also that they would accept re-
sponsibility (as part of their own quota) for some exports by Ameri-
can outsiders. The Big Three would charge against their quota any
shipments by independent American firiTis, up to an amount not ex-
ceeding 10 per cent of the quota. If the outsiders' shipments
amounted to more than 10 per cent but not over 20 per cent of
the American quota, the Big Three agreed to charge half of the
excess against their own quota. But the Big Three did not feel able
to assume the penalties for outsiders* .shipments beyond 20 per cent
of the American quota. As in all things, even insiders have to ac-
cept slow but steady progress as the means of getting what they are
after.

Negotiations on behalf of the American group in 1938 were con-
ducted principally by Benjamin F. Fairless, president of United
States Steel; Eugene G. Grace, president of Bethlehem Steel; and
Tom Girdler, chairman of the board of Republic Steel. The Ameri-

THE FRATERNITY BROTHERS 49

can group undertook to try to bring ten additional smaller American
producers into the agreement by having them join the Steel Export
Association. They arranged to have two representatives of the Steel
Export Association remain in Europe to continue the relations
between the Steel Export Association and the International Steel
Carteh These were Messrs. J. 0» Cutwater, president of the Steel
Export Association, and William B. Todd, who were to work to-
gether with the British group through Mr. Ian F. L. Elliott, repre-
sentative of Sir Andrew Duncan's British Iron and Steel Federation.
Mr. Elliott was to turn up several years later as a representative of
the United States on the international control authority for the
German Ruhr; but at the time his was just one name among many.

More important to us at the moment was the tie-in between
Luxembourg and Germany. Despite appearances, Luxembourg, with
its thirteenth-century stone parapets and parrot-cage sentry boxes,
and its hero, Aloyse Meyer, could scarcely be dismissed as comic-
opera material. According to the cartel agreement, the chairmanship
of the managing committee was supposed to rotate annually among
the participating countries. Actually, the headquarters remained
permanently fixed in offices belonging to the Arbed steel combine in
Luxembourg. When the first chairman of the cartel was killed in an
accident in 1928, he was succeeded by Meyer, who continued as
chairman of the cartel until its activities were interrupted by World
War IL

For years Aloyse Meyer, as head of Arbed, had been a director
of Arbed's subsidiary in Germany, the large Felten & Guilleaume
cable works. Working with M. Meyer, and serving as chairman
of the board of directors of Felten & Guilleaume, was Baron Kurt
von Schroder, Hitler's banker. As far as we were concerned, the
line from M. Meyer and Arbed and the International Steel Cartel
to von Schroder s private bank at Cologne could have been as thin
as a filament of spider's web. We were looking for the spider.

CHAPTER 5

Hare and Hounds

GOING into Germany from France and Luxembourg was like
entering a tunnel. The friendly flag-waving of children and grown-
ups that enlivened the dusty, jolting ride through towns and coun-
tryside in the "liberated" territories gave way abruptly to a black,
empty feeling of being alone, moving toward one distant objective.
That is how we felt as we approached the German city of Bonn
the afternoon of April i6, 1945. Nearly a month before, the "T'*
force party at Cologne had reported bad luck at the "bank of the
cartel kings," Baron Kurt von Schroder's bank. The building at
No. I Laurenzplatz, near the cathedral, was a wreck. The vaults and
records were under twenty feet of rubble and twisted steel. How-
ever, the steel cartel files at Luxembourg had given us the location
of Baron von Schroder's villa at Bonn, fifteen miles south of Co-
logne; and we decided to try there.

Nobody was living in the battle-damaged villa when we dropped
in that April evening. In a damp cellar room we found a stack of
papers, some baled and some loose. The pile was about four feet
high and ten in diameter. On top of one bale, under a stack of
letterheads, was a folder of letters addressed to Baron von Schroder,
some in his capacity as a leader of the Nazi Party, and some in his
capacity as a lieutenant general in the SS Black Guards. Quite
a few of the letters were on elegant stationery with a letterhead
that needed no address or telephone number — a chastely engraved
"Reichsfiihrer^^'* was enough. The scrawled signature, "H. Himm-
ler," was simply an added flourish.

The files and account books, all bearing the mark of the Bankhaus
J. H. Stein (founded 1790), of Cologne, appeared to be a few tons

HARE AND HOUNDS 51

out of the many that had comprised the working files of the bank.
Their position near the furnace in our host's house did not neces-
sarily mean that he considered them trash. We found very often
in Germany that the speed of the advance had been consistently
underestimated by Germans of all ranks. Nothing else would ex-
plain their common failure to carry through simple precautions like
burning papers or blowing up bridges.

The letters from Heinrich Himmler to Baron Kurt von Schroder
were interesting but monotonous. The man seemed always to be
asking for money. Nor was he interested in small change. The
amounts were nice round figures running into the hundreds of
thousands and often millions of reichsmarks.

The Schroder family of Hamburg, into which Baron Kurt von
Schroder was born in November 1889, had been bankers for gen-
erations. In a preceding generation, Baron Johann Heinrich von
Schroder had moved to London, adopted the anglicized name,
J. Henry Schroder, and developed an extensive business financing
overseas trade, especially with Latin America.

Another member of the family, Baron Bruno von Schroder,
Kurt*s cousin, born in Hamburg in 1S67, moved to London early
in life but retained his German citizenship until 1914 when he be-
came a British subject. Baron Bruno headed the banking firms
J. Henry Schroder & Company of London, and the J. Henry
Schroder Banking Corporation of New York until his death in 1940,
when he was succeeded by his son, Helmuth W. B. Schroder, the
present head.

There appeared to be no community of ownership between the
Stein Bank of Cologne and the Schroder Banks of London and
New York, though the two groups acted as correspondent banks for
one another and participated jointly in so many deals that what the
Germans call an Interessen Gemeinsckaft, or community of interests,
existed between them. The pattern for this parallel action had been
laid in 1914 when the British closed down German banks in London,
but allowed the Schroder firm, headed by "British subjects," to
operate through the war.

The list of major clients of the Bankhaus J. H. Stein was a roster
of west German heavy industry. The records left no doubt that the

52 ALL HONORABLE MEN

Stem Bank had been in a good position to help the London firm to
live up to its reputation as the bridge between London's "City" and
the industry of the Rhineland and Ruhr.

Among the number of threads that had made us decide to pay
a call on Baron Kurt von Schroder and his bank had been an argu-
ment back in England, at Bushy Park, when we were planning our
itinerary. I have already mentioned that for a time we were assigned
to work in the Finance Division of General Wickersham's head-
quarters with Captain Norbert A. Bogdan, vice president of the
J» Henry Schroder Banking Corporation of New York. Captain
Bogdan had argued vigorously against investigation o£ the Stein
Bank on the ground that it was "small potatoes.'* We should con-
centrate our efforts on bigger targets, such as the Deutsche Bank
and the Commerz Bank. To waste time on small-scale private banks
would discredit our investigations. We had noted, however, that the
day after this outburst two of the permanent members of Captain
Bogdan's staff requested military travel orders to Cologne to investi-
gate the Stein Bank. This was an unusual apphcation. Since Cologne
had not yet fallen, it was tantamount to a request to accompany
the Forces immediately behind the combat units* The Intelli-
gence Division blocked that one.

Another thread had been the business collaboration of many years*
standing between Baron Kurt von Schroder and a very good friend
of Franz von Papen, Gerhardt A. Westrick. Dr. Westrick was a
prominent German lawyer and a member of the law partnership of
Albert & Westrick. The senior partner of that firm, Dr. Hcinrich
Albert, was another of von Papen's friends. Albert had come to the
United States in 1914, supposedly as a German commercial attache,
and had raised something over thirty million dollars from American
sources friendly to Germany to finance the espionage and s2hotagc
activities which Franz von Papen directed in the United States
during World War L With these funds, for example, the heavy
chemical industry of the United States was crippled by the simple
expedient of buying up all of the chemical stoneware produced
in the United States. Stoneware was at that time the only type of
equipment that could resist the corrosive action of the important
heavy chemicals. Many American chemical plants were eventually

HARE AND HOUNDS 53

shut down for lack of this stoneware. For the duration of World War
Ij it kept piling up in warehouses leased by von Papen s cloaks.

After World War I the law firm of Albert & Westrick was very
busy with the program of American loans to build up Germany,
Beginning in October 1924, when American investors advanced
$110,000,000 of the original $200,000,000 international loan under
the Dawes Plan, a stream of private loans to German governmental
organizations, public utilities, banks and industries had poured in
American money from private sources at the average rate of over
a quarter of a billion dollars a year, until the American crash of 1929*
Two American investment banking organizations handled the bulk
of this private lending system for the rebuilding of Germany. They
were Dillon, Read & Company of New York, and the J. Henry
Schroder Banking Corporation. Legal work on the Schroder Bank
loans was always handled in Germany by the firm of Albert &
Westrick, and in the United States by Sullivan & Cromwell, the firm
headed by John Foster Dulles.

But to return to Gerhardt Westrick: in April X940, this fraternity
brother had come to the United States ostensibly as a commercial
counselor to the German Embassy, but actually on a direct assign-
ment as personal representative of the Nazi Foreign Minister, von
Ribbentrop. His mission was to attempt to convince American busi-
ness leaders that they would gain by a Hitler victory, and to persuade
them to help in keeping the United States out of the war. Dr.
Westrick rented a house in Westchester County, New York, where
his visitors included many nationally prominent executives of
certain American oil and other industrial corporations.

After it began to appear that Dr. Wcstrick's efforts had gone
beyond the normal activities of a diplomatic representative, the
Department of Justice required him to register as a German propa-
ganda agent. Then the New Yor\ Herald Tribune and other papers
assigned reporters and photographers to dog his trail and highlight
everything he did. On October 9, 1940, he sailed for Japan. The
American press congratulated itself on having made Westrick 's
propaganda mission an ignominious failure. But as we looked into
the transactions of Baron von Schroder and Dr. Westrick, we won-
dered.

54 ALL HONORABLE MEN

There were many questions we would have Hked to ask Baron von
Schroder had he been home that April evening in 1945, but it was
not until two months later that another of our men, Robert West,
formerly of the White House detail of the Secret Service, tracked
him down. Von Schroder was found in a detention camp for SS
prisoners in France, masquerading in the battle fatigue dress of an

55 corporal.

Some of the records began to make sense, even without Baron von
Schroder. Several bundles were the detailed ledgers of deposits into
the special account labeled "Sonderkonto S.'* What struck us first
was the all-star cast which made up this list of depositors. Of the
forty or fifty names which turned up regularly in the pages, running
all the way back to 1933, wc recognized about twenty immediately
as well-known directors of the biggest German industrial firms in
the fields of coal, iron and steel, machinery, chemicals, electrical
equipment, transport, and electric power. In the galaxy of corpora-
tions deahng with the Stein Bank, this list of individuals might not
have seemed unusual except for two things: the regularity of the
deposits in this joint account, and the close relation between decreases
in the account and the Himmier letters asking for money.

This one account, we learned by putting Uttle pieces of evidence
together, covered only the running expenses of Himmler's SS, and
perhaps some of the Gestapo; but if one special account had the
letter "S/' it was a fair guess that somewhere, in the Stein Bank or
elsewhere, there could be other special accounts *'A" or "B'* or "Y" or
*'Z." The arrangement was simplicity itself* At a wink or a nod
from someone — in this case we later found it was Wilhelm Kep-
plcr of the Nazis' "Hermann Goring'' steel combine — the con-
tributors would quietly make deposits into the special account at the
bank. When the leader of the party formation — in this case Himnv
ler — wanted money, he asked for it; and it was drawn against the
same account* No muss, no fuss, no "Nazi** connections for the
contributors.

The next day, after the discovery of von Schroder's records, we
divided our party. Besides Bursler, Sacks, and myself, there were
Rene Manes, a naval lieutenant from SHAEF and an expert ac-
countant; Bernard Glaser from the Treasury; John Walker, special-

HAR£ AND HOUNDS 55

ist in German documents; and Richard Thompson, FBI liaison with

Twelfth Army Group. Rene Manes and I left the rest of the party at
von Schroder's villa and went down to Cologne to look for records
of the steel interests belonging to Otto Wolff, a leading contributor
to the "S'* account. Wolff himself had died in 1940 but the files of his
firm were intact in three subbasements of a building not far from the
wreckage of the Stein Bank. We put a guard on the records,
arranged billeting for some of the party, and returned to Bonn.
AH told we collected several tons of documents from Bonn and
Cologne, most of which we sent back to Versailles with Man&s.
Bursler, Sacks and I packed ourselves and nearly a ton of records
into an open weapons carrier and banged along eastward to Frank-
furt am Main.

We hoped to find some of the living contributors to "Sonderkonto
S" and dig further into the reasons why they considered it 'good
business** to make these donations. In particular, I wanted to inter-
view Baron von Schnitzler again. In his villa near Frankfurt two
weeks before von Schnitzler had looked every inch a baron, from
his black homburg, velvet collar, and gray spats, to the young and
beautiful baroness on his arm. One would never have guessed that
von Schnitzler was a criminal, one of the financial mainstays of the
Nazi regime, and a mastermind of the LG. Farben foreign organiza-
tion. When Frankfurt fell on the twenty-seventh and twenty-eighth
of March, 1945, von Schnitzler was living, comfortable and un-
perturbed, in his villa not many miles outside the city. His manner
was that of the master of the house greeting the fire department.
He was affable, urbane, but kept the firemen in their place. He
offered brandy, and then withdrew it in deference to the non-
fraternization order. His manner managed to imply that the
non fraternization idea was an immature gesture typical of a
certain kind of American.

The war had not touched Baron von Schnitzler and, to hear him
tell it, he had not touched the war. It was a case of live and let
live. He asked us how soon he would be able to get in touch with
his friends in Imperial Chemical Industries, Ltd., in England, and
Du Pont in the United States. He said he was relieved that the
recent "unpleasantness" was over. It was very important that he

56 ALL HONORABLE MEN

and his friends should pick up where they had left off and build for

the future. Now that we had the records of his deposits into "Sender-
konto S/* I wanted to get him back for a longer talk.

When we had him brought to our field office in the Reichsbank
building at Frankfurt for questioning, Baron von Schnitzler denied
having had anything to do with Hitler or the Nazi Party. They were
beneath him. He was a businessman and his factories had produced
things which the Nazis needed; but they had come to him. Certainly
he had never contributed in any way to their activities. He had
deliberately avoided knowing anything at all about "govern-
ment" business done by the firm. That was handled by other
directors.

Baron von Schnitzler was thoroughly at ease throughout the
several hours of our questioning. We warned him repeatedly of
the stiff penalties for making false statements. But he talked on
persuasively and smoothly, in perfect English. The records of
"Sonderkonto S'* seemed miles and ages away as the Baron talked.
Perhaps he did not know the records had been found and he was
bluffing or lying. But actually in his own mind he need not have
seen any inconsistency between his pose as an "unpoliticar* business-
man who did not want to know about "government" business —
poison gas, slave labor, Auschwitz and all that — and his record of
steady contributions of at least forty thousand dollars a year to
"Sonderkonto S." In his own way he was speaking of a world in
which one makes the necessary contributions to ''causes" without
feeling personally involved at all.

That is not to say that the Baron was unaware of how his be-
havior might be interpreted by those of us who did not belong to his
fraternity. All through our conversations, both at his villa and in the
Reichsbank building, the interrogators had been anonymous. The
German intelligence service had had most American government
officials bracketed in preparation for the occupation; but they needed
to know who was coming in order to know what records to hide
first. We never addressed one another by name or gave any hint of
the reason for our interest in the Baron's business. To put him at
ease I pretended at the first interview that I had never heard of the
I,G. Farben firm nor of von Schnitzler. At the outset I asked him

HARE AND HOUNDS 57

v/hat he did for a living. When he said he was a director of I.G.
Farbenindustrie, I asked him what that was. He said it was a com-
pany* What did the company do, make shoes, ships, textiles.? It was
a chemical firm, he stated; a very large chemical firm.

As the questions rolled along, all of a police-blotter variety im-
plying a profound ignorance on our part, von Schnitzler sat back
with a bland and contented look, arching his eyebrows and leveling
a hawklike gaze along his Roman nose as though it were the barrel
of a fowling piece. He lied like a trooper through it alk

Toward the end of the second interview, however, von Schnitzler
tried to find out who we were; and one of our men made the mis-
take of calling me by name. For just one instant the Baron*s eyes
registered a quick appraisal. He then carefully and deliberately
recrossed his legs, shifted his gloves from one hand to the other, and
asked if I was satisfied that all his replies had been truthful and
complete. When I told him merely that if we wanted anything
further he would hear from us, he persisted for several minutes
asking in various ways if wc did not want him to ^'clarify" any of his
answers. Later we found in his files copies of published testimony
on I.G. Farben that several of us had presented to a Senate com-
mittee in 1944, with our names underlined in green ink.

Von Schnitzler did not appear particularly surprised when at the
end of the interview he was taken to jail, charged with making
false statements to military government officers, and later held for
trial as an industrial war criminal. He was among those convicted
in 1948 and sentenced to twelve years for profiting from the war
and for being responsible for abuse of foreign workers. He and all
the other industrialists tried with him were acquitted, hov/ever,
of complicity in starting the war; because the court held that they
had not had advance knowledge of Hitler*s specific plans for
military aggression. These men had started a chain of events whose
inevitable outcome was war. But in the eyes of the law, as the Ameri-
can judges construed it, only those who had forged the last link
could be guilty of a crime.

The old Frankfurt had been almost leveled to the ground, while
the I.G. Farben office building, one of the largest in the world, stood
untouched. The handsome cathedral where kings of the Holy

58 ALL HONORABLE MEN

Roman Empire had been crowned, the little inns with their carvings
and paintings, and the hundreds of other weathered and mellowed
reminders of Germany's old life in the times before Bismarck,
HohenzoUern, and Hider, all had suffered the tortures of the
damned. But the Nazi edifice of the New Order, literally a giant
filing cabinet loaded with hundreds of tons o£ papers and records
of the Farben empire, remained whole.

In the synthetic Nazi economy, Farben's mountains of paper were
fully as important as the mountains of coal in the Ruhr. The Ger-
man businessmen who had handled Farben's gentlemanly agree-
ments with the fraternity brothers in other countries were prolific
writers of memoranda. They had kept voluminous diaries and notes
of conferences. Patents and patent-licensing agreements, domestic
and international, were the stuff their dreams were made on.

The very volume of their paper work was almost our undoing.
The main Farben building consisted of six large wings^ each seven
stories high, arranged to form an arc of a circle and connected by
five hyphens of the same height. This colossus of steel and buff-
colored stone was bulging with everything from contracts with
Du Pont and Imperial Chemical for the division of world markets
down to the invoices of shipments of drugs or photographic film to
a little wholesaler in Buenos Aires. In all the fighting for the city
hardly a window had been cracked and not a filing cabinet disturbed.
But as the city fell, into this refuge had swarmed over eleven thou-
sand displaced persons and liberated slave laborers, looking for
temporary shelter and warmth. Within two days the rooms, corri-
dors and stair wells of the building had become snowbound in a
blizzard of papers. Everything spilled from the files as desperate
people took care of the needs of warmth, sanitation and revenge in
one mad assault on the neatly ordered rows of cabinets.

Advance members of our party had reached Frankfurt on March
29, most of them answering a call from *Xucky Forward." General
Patton's armored spearheads racing eastward towards Wurzburg
had stumbled upon the greatest collection of SS loot, art treasures,
and Nazi gold reserves ever uncovered in Germany. This mass of
carefully indexed material, including everything from the famous
collection of paintings of the Kaiser Wilhelm Museum to sacks

HAR£ AND HOUNDS 59

of gold teeth and suitcases full of gems stripped from victims of the

SS murder camps, had been hidden deep in a potash mine at
Merkers, east of Frankfurt. Patton roared back to General Eisen-
hower to send someone up to take responsibility for this hoard.
Guarding it was tying up a whole regiment and knocking hell out
of one of his divisions, he said. Colonel Bernard Bernstein, to
whom we were attached in the Financial Branch, got the assignment
and moved up to Frankfurt and Merkers with every member of
the staff he could pull away from other duties. They started the
Gold Rush of 1945, tracking down leads to odicr Nazi loot and
having it shipped back for safekeeping to the commandeered Reichs-
bank building in Frankfurt.

This advance party began burning up the wires for reinforce-
ments from our side when they saw what was happening to the I.G.
Farben records at Frankfurt. Two of the Treasury men got a load
of German PW*s to sweep all of the papers into the west wing of
the building where they could at least be sealed off. But the SHAEF
Headquarters Commandant arrived in a few days to requisition die
building as a future forward headquarters for General Eisenhower,
and ordered the building cleared of all this * refuse." Army trucks
began backing up to the building, hauling off truckloads of the
papers and burning them. Only the most vigorous argument could
produce so much as a temporary truce while we tried to round up
enough men to do something with the three hundred to four hun-
dred tons of papers stacked in the west wing.

The token force from Treasury and our one man from Justice
soon got support from a technical team attached to the "T" forces,
headed by a British officer, Colonel Gordon. This team was in hot
pursuit of Farben *s secret poison-gas experiments which were sup-
posed to have produced not only the superpoison, Tabun, a droplet
of which meant slow death, but a still more powerful poison, Sarin,
a smaller droplet of which meant instant death. They found that
several hundred carloads of both had been produced, put up in
containers disguised as dyestuff intermediates and other harmless
chemicals, and shipped in railway cars billed to Wehrmacht ammu-
nition dumps at points all over Germany. Apparently the only thing
deterring the Wehrmacht from releasing the gases was the fact that

6o

ALL HONORABLE MEN

no gas mask or decontaminating agent capable of protecting them
from the stuff had yet been deveioped. Some of the Farben chemists
were still searching frantically for the antidotes when Colonel
Gordon*s men picked them up. Intentional or accidental opening of
the disguised containers would cause wholesale havoc; and the keys
to their identification were somewhere in the Farben production
records. Colonel Gordon's men worked fast and talked sharply; but
even so, they were just barely equal to the task of keeping the
Headquarters Commandant's men from "cleaning up" the place to
meet its destiny as the most impressive-looking military head-
quarters in Europe.

On the evening o£ April 28, when I arrived with Bursler and
Sacks, we found enough manpower assembled at Frankfurt to start
looking for the why that lay behind the collaboration of German
industrialists with the Nazis — the prior question, one step re-
moved from the poison gas and the slave labor and the murder
camps that had been the end product of the collaboration.

But first we had to move the records to a building next door to the
Reichsbank. We 'did it in three days with two tractor-drawn vans,
two hundred PW*s and three hundred LG. Farben employees. A
crew of two dozen or more Farben department heads and chief
clerks was kept busy identifying bundles of papers so that they could
be routed to different rooms and reassembled* To prevent some of
the inevitable sabotage and concealment of documents, a human
chain of Farben employees was stationed on the stairways to pass
bundles hand over hand while the PVV's were kept moving with
individual bundles. A tremendous speed-up, with a great many
shouts of ''schnell, schnelir was the oniy other precaution we could
devise.

One of the minor Farben officials tried to do his bosses a service by
concealing the diary of one of their best foreign negotiators, Dr.
Frank-Fahle. The little official had a job on his hands. The diary
consisted of about forty-two volumes of closely written notes,
arranged in loose-leaf notebooks. He took advantage of the con-
fusion of files, papers, displaced persons, war prisoners, and Farben
employees to spirit away the separate volumes of the diary and put
them one by one under a heap of rubble and wastepaper. Alex Sacks

HARE AND HOUNDS

61

watched him for a few days until satisfied that the entire set had
been assembled, and then picked them up all at once.

The same investigative technique, if it could be called that, led
to the discovery of the ''Neuordnung'' or New Order documents.
These were plans prepared during the war by the LG. Farben
management to explain to the German Economic Ministry their
over-all recommendations for organization of the chemical in-
dustries in occupied territories wherever German arms should
triumph. Since they had thought of everything and had written
most of it down, we could gradually assemble a fairly compre-
hensive picture of the use that the Germans had been able to make
of things like patents. The patent laws of other countries had pro-
vided a solid footing for what otherwise might have been tentative
gentlemen's agreements.

We recalled that when the Antitrust Division and several Senate
committees had begun their wartime investigations of the American
patent system, there was a lot of folklore about the international
arrangements among the fraternity brothers. Economists were say-
ing that it would have been impossible for an international arrange-
ment to keep up prices or divide markets beyond the point where
someone found it more profitable to break away from the agreement.
They said that as soon as some one member of the group decided to
break away there was nothing to hold him. He would, as an
economic man, follow the paths to greatest profits regardless of any
gentlemen's agreements to the contrary.

The German gentlemen said, ''Ach, so?'' Investigations showed
how far they could go in putting teeth into their agreements. An
agreement is more than a gentlemen's agreement if the violator can
be tangled up in expensive litigation, especially if the courts in his
own country can be used to issue injunctions and compel perform-
ance. Between wars the art of founding international arrangements
on enforceable legal contracts had developed to a fine point of per-
fection. The patent laws of the respective countries furnished only
one out of many possible means; but patent agreements had one
peculiar advantage. Most patent laws are so complicated that litiga-
tion is long and expensive. An international private treaty that
draws its strength from legally enforceable patent obligations is

62

ALL HONORABLE MEN

very well founded indeed. The tougher the litigation in the event of
a breach, the less likely that any gentleman will try to back out on
his obligation.

The terms of the Versailles Treaty had limited the right of Ger-
jnan ijidustry to certain kinds of tariff protection and to the other
kinds of subsidies and exchange controls that may be used to bolster
arrangements for the division of markets. We found that from
the time LG. Farbenindustrie A.G. was formed in 1925 the manage-
ment had proceeded along definite lines to develop fairly simple
patent schemes for protecting and expanding their position in
markets abroad.

Germany was already far ahead of most other countries in the
development of chemical synthetic processes for making various
raw rxiateriais which were plentiful as natural products in interna-
tional markets. Nitrates, for example, had always been a near
monopoly for the Chileans; but Germany's war effort in 1914 had
been made possible by the development of the Haber-Bosch syn-
thetic nitrate process which provided an unlimited supply of ex-
plosives. Many developments in dyestuffs, pharmaceuticals and
other products had likewise helped to make up for Germany*s
natural deficiencies in raw materials. Coal and potash and forest
products are about all that Germany can claim in the way of natural
resources. This gave considerable incentive for the development
of synthetics.

The practice of I.G. Farben was to capture the basic psttents in
each field of synthetic chemistry. They would file applications for
patents not only in Germany but also in most of the civilized
countries of the woM. Our own patent laws were full of loopholes
that helped a great deal. For one thing, despite the legal require-
ment that a patent specification must be so detailed as to enable
a man ^'skilled in the art'* to practice the invention, a vague descrip-
tion of the method of producing a chemical compound is often
enough to obtain a patent. During World War 1 when the Ameri-
can Alien Property Custodian seized the ov/nership of German
patents, he took over the patent on Salvarsan, Dr* Ehrlich*s "magic
bullet" for the treatment of syphilis. When American technicians
went: to work to follow the recipe set out in the patent specification,

HAREAND HOUNDS 63

the material turned out to be violently poisonous. The recipe had
carefully avoided mentioning how to eliminate the poisonous arsenic
compounds that occurred in the preparation.

Further, these loopholes permitted an enterprising firm to file
its application for a patent long before the actual "bugs" had been
worked out of the production process. The Germans, between the
two wars, made an especially energetic drive to exploit their initial
advantage in the field of synthetic chemistry in this way. In many
cases they blanketed whole new fields of industrial technology by se-
curing basic patents covering all known or suspected processes for
synthesizing important materials. In some cases they themselves had
not discovered how to make these materials, but that mattered very
little. If someone else did discover the "know-how," he would find
himself blocked by the patents already issued to some German firm
or individual on the basis of a general description of the process.
Confronted with this earher patent, the new inventor had a simple
choice before him : spend anywhere up to ten years and thousands of
dollars in arguing a patent interference through the Patent Office
and the courts; or make a deal. Most of them chose to make a deal.
But each deal included specific and legally enforceable recognition
by contract on the part of the newcomer that the German patent
was valid and not open to question. Then he would get a promise
from the Germans that as they worked with the new process in their
own factories and laboratories, they in turn would make available
to him the technical know-how that they might discover. TJiis made
it a mutual enterprise beneficial to both, saved expense of litigation,
and besides the two could then join forces against any other in-
ventors who might still be outside the arrangcmtnt.

In practice, this meant that if LG. Farben caught Du Pont on the
first go-round with the Farben patents in the United States and made
a deal with Du Pont, from then on it was I.G. Farben and Du
Pont against, shall we say, Monsanto. And as more outsiders fell in
with the scheme the team of solidly organized patentees grew and
the chances of the remaining outsiders were less and less.

Now that we had the files and many of the directors of Farben we
could find out how some of these feats had been accomplished,
provided we could pick the right haystack and then find the needle.

64 ALL HONORABLE MEN

When a mystery is complicated, the French tell us to look for a

woman; but in sleuthing among corporations, we found it was much
better to look for the chief accountant. We found the chief ac-
countant of LG. Farben, still alive but in slightly damaged condi-
tion, in Frankfurt. Paul Dencker had probably been scowling,
rat-faced, and resentful for most of his life; but besides this, he had
been crippled and scarred in the bombing of Frankfurt. By the time
we got to him, he was what you niiglit call downright unfriendly.

Dencker, when he was ready to talk, proved to have an accurate
memory for names, numbers, and places that few people could equal
and probably none could surpass, Ke remembered correctly the
names and most recent addresses of every important director, officer,
department chief, and plant manager of the Farben combine, the
financial accounting details of the firm's books, and — when he
could be pinned down — the hiding place of the subsidiary files and
accounts of all the fifty-three main departments that m.ade up the
Farben organization* His speech was likely to be impolite. Unless
corrected, he would refer to all occupying forces as *''auslandische
Vandalen" — foreign vandals. But he knew accurately most things
the top directors would have liked to forget.

Geheimrat Hermann Schmitz, who had succeeded old Carl
Bosch as top man of the whole combine, never did open up. Max
Ilgner, the financial chief, side-stepped questions so easily that it
was usually simpler to ask someone else or to draw conclusions from
the records. August von Kniericm, chief legal counsel, always hope-
ful of help from abroad, was careful not to admit that he knew any-
thing* Karl Krauch, the poison-gas man, knew that anything he
said might be used against him. Baron von Schnitzler, in charge of
sales of dycstuffs and chemicals, and very active in foreign geopoliti-
cal matters, finally tried to spill a great flow of generalities and ad-
missions. And so it went throughout the list of the top management.
It was Dencker who supplied the key, because on any subject he
knew what man in the whole organization would have the answer
and he knew where that man could be found.

The world-wide activities of the Farben organization as part of
the German war effort have been pubHcized so much that they have
created a picture of an octopus-like monster. Actually that is not the

HARE AND HOUNDS 65

point. Most of the individual acts which made up the spectacular
geopolitical activities of I.G. Farben looked like ordinary business
transactions. Partly their success was due to American acceptance
of the "business is business*' philosophy. Largely relying on this easy
tolerance of social irresponsibility, the Farben organization put across
its efitire program, capturing markets, bottling up inventions, dig-
ging out economic and industrial secrets, and financing propaganda
pracdcally without fear of reprisals or countermeasures.

One illustration is the successful concealment of Farben's foreign
activities. From the very first, the LG. Farben management de-
veloped a program of what they called Tarnitng, meaning conceal-
m-ent. The three-billion dollar corporation, LG. Farbenindustrie
A.G., had started as an hitcressen Gemeinschaft, or community of
interests — that is, a cartel — among the six largest German pro-
ducers of dyestuffs: an Interes^en Gemeinschajt of the Farben in-
dustry. The individual companies that went together in 1925 to
make up the combine had tem.porarily lost many of their foreign
properties through alien property seizures during World War L
That fact alone might have been reason enough for them to protect
their common interest by finding ways to make their foreign
properties legally immune from future wartime seizures.

Even if there had been no contemplation of future war> however,
there were business reasons why a German company of the 1920's
would develop a Tarnung program. In those years there was anti-
German feeUng in the important w^orld markets. It was advisable
for German companies to assume the character of domestic organi-
zations in each country. This could have been done merely by
adopting an American name for sales operations in the United States,
without hiding the legal ownership. But in many countries a foreign-
owned corporation can avoid extra ta^ces if the ownership appears
to be domestic from a legal, as well as from a public relations, stand-
point.

Also, many countries have adopted foreign currency regulations
which subject a foreign corporation to control or supervision thst
might not be applied'to a domesdc company. Under such regula-
tions, the books of a branch office or subsidiary corporation might
have to show details of the profits and losses of the parent corpora-

66

ALL HONORABLE MEN

tion in Germany. In that case the governments having jurisdiction
over the foreign branches would be able, by pooHng their informa-
tion, to see how well or badly the parent corporation was doing.
German corporations did not want to expose their points of financial
strength or weakness at a time when they were embarking on an
international struggle for markets*

In the United States there were still more reasons for hiding the
ownership of German companies. Most of the new German firms,
especially in the heavy and synthetic industries, depended upon
government subsidies to make their operations financially possible.
The United States had passed, as part of its tariff laws, the "anti-
dumping'* act of 19^1. This act provided that if any foreign govern-
ment subsidized exports to the United States, so that the foreign
producers were in eflect olTering their goods below actual cost, a
special "countervailing duty" would be levied against the goods. The
United States Customs would collect an added amount equal to
the foreign subsidy. Camouflage of the American subsidiary would
allow the German company to appear to sell goods to an independent
American company at the full market price. Then the German
government could take care of low profits by paying subsidies be-
hind the scenes, overseas, where the eyes of the United States
Treasury could not penetrate. Another reason for concealment of
properties in the United States was the fact that many German com-
panies were floating large loans abroad to finance plant expansions
in Germany. In the event of default, the German companies did
not want to appear as owners of valuable assets in the United States,
where the disappointed bondholders could reach them by court
action.

The Tarnung program developed by I.G. Farben proved to be re-
markably weatherproof. It was Dcncker who gave us the first
indication that documents describing the concealment program had
been kept by the management. But despite his recollection of the
shape and size of the black leather folder containing the file of
Tarnungs Fragen, we never caught up with it. The combined in-
vestigative powers of other agencies of the United States government
were still unable, even four years after the end of World War II,
to prove the German ownership of I.G. Farben*s biggest enterprise

HARE AND HOUNDS 67

in the western hemisphere, the multimillion-dollar General Aniline
& Film Corporation of Binghamton, New York. This company,
originally named the American I.G. Chemical Corporation, de-
veloped a large business in dyestuffs, "Agfa*' photographic equip-
ment and supplies, and a host of other chemical products. In this
case, I.G. Farben made no attempt to conceal the foreign ownership
of General Aniline, but concentrated on establishing legally that
the ownership and control was Swiss rather than German.

The laws of ''neutral'* Switzerland were a great help in many such
arrangements. The shares of stock in most German and Swiss
companies are in "bearer'* form. Even a look at the certificates does
not help to identify the owner. Only the books of the bank which
holds them for the owner can show for whom the banker is acting,
and from whom he receives instructions on how to vote the shares
at stockholders* meetings. But Switzerland has a "bank secrecy'*
law. It is a criminal offense for any Swiss banker to disclose the
actual ownership of property entrusted to his management. As we
found in concrete terms how effectively this arrangement had pro-
tected the German flank, it began to seem that Switzerland's suc-
cessful neutrality throughout two world wars may have hinged
on things like this law far more than on the ferocity of the Swiss
guards or the tenacity of Switzerland's democracy.

From the American side, the picture was not so rosy. We found
that throughout the war the American diplomatic position in
Switzerland had been to a great extent represented by American
bankers. Some of these seemed to have had their own reasons for
approving the pattern of private international co-operation made
possible by Swiss law.

The cluster of American bankers who spent the war years in
Switzerland incIuded^, perhaps by coincidence, American lawyers
and bankers who could be expected to know the most about the true
relations between I.G. Farben and the General Aniline & Film
Corporation. The J. Henry Schroder Banking Corporation and its
law firm, Sullivan & Cromwell, had handled the banking and legal
business of the General Aniline firm from the time it was first set
up as the American I.G. Chemical Corporation. Throughout the
war, Allen W. Dulles, a partner in Sullivan & Cromwell and until

68

ALL HONORABLE MEN

1944 a director of the Schroder bank in Nev/ York, headed the

European Mission of the Office o£ Strategic Services in Switzerland;
and V. Lada-Mocarski, vice president of the Schroder bank, was a
United States consul in Switzerland.

Even lifter its seizure by the Alien Property Custodian^ General
Aniline was administered on behalf of the Custodian by officials
of American companies which, under the code of the banking
fraternity, were part of the Schroder group. Some might hold that
these men were a good choice for these jobs for the very reason
that they had good banking connections. But the Schroder-picked
ofriciais who were in charge of the American company and the
Schroder oificiais who were representing the United States in
Switzerland never managed to get the Swiss government to produce
information which Swiss bankers had at their finger tips. The fog
around the ownership of General Aniline has never been dissipated.

While the United States government, v>^ith this kind of help
from private businessmen, was unable to penetrate the camouflage
that LG, Farbcn had set up^ Vv^e found that the Farben organiza-
tion, working hand in glove with the German government, had
prepared global economic plans for the w^orid's chemical industry.
These plans for a new order would have carried further the world-
wide network of agreements which the I.G. Farben management
had made in all the important industrial and marketing areas before
the war.

In 1940, after the fall of France, the I.G. Farben management put
these New Order plans in writing and presented them to the Ger-
man Economic Ministry for official approval. These plans were
divided roughly into two parts.

The first would apply especially during the phase of military
operations in Europe, while England was being subdued. It was
expected that after Europe was conquered there might be a period in
which a Germanized Europe would have to "improve its strength
in relation to the countries outside of the European sphere," as von
Schnitzler put it. "This meant, of course, the United States," he
added. The purpose was to maintain control over the chemical
industry of Europe so that no new plants would be set up outside
Germany, and so that the production in existing factories could be

HARE AND HOUNDS 69

supervised. Special emphasis was placed on preventing patent licenses
or technological information from being given to the chemical in-
dustry outside the area of German control. This provision was
aimed particularly at the chemical industries of the United States^
which had been heavy "importers" of German technical information.

One incident, in particular, evidently caused a great stir in the
Farben organization after the New Order plan had been in opera-
tion a little over a year. In January 1942 came the Department of
Justice case against the Standard Oil Company of New Jersey,
charging conspiracies with I.G. Farben to violate the antitrust laws.
The company and its officers paid fines and accepted a court decree
enjoining them from continuing the marketing and patent arrange-
ments in the future. The Standard Oil Company then bought full-
page advertising space in newspapers ail over the United States
to publicize Standard*s claim that the United States had benefited
from the F^irben deals because Standard had received much more
technical information from I.G. Farben than they had given I.G.
in return.

It was, of course, true that under the agreements much of the
basic research was to be conducted in Germany. The American
partner, therefore, had to depend on Germany for more technical
information than they would themselves be able to give in return.
When the German Economic Ministry read copies of the Standard
Oil advertisem.ents, they demanded a full report from I.G. Farben
to answer the charge that Standard had had the better of the ex-
change. In the files at Frankfurt we turned up copies of the I.G.
Farben report to the Economic Ministry. The Farben managers
were not allowed to rely on the sweeping generalizations of a
newspaper advertisement. Their scientists had to produce docu-
mented answers to satisfy the Economic Ministry and the General
Staff. The contention of the Farben report was that the German
firm had received from Standard Oil several important new links
in the jigsaw puzzle of their own technology, whereas the ap-
parently vast quantities of information they had passed over to the
Americans had left large gaps to be filled by new research and de-
velopment before they could be put to any use.

The second phase of the I.G. Farben New Order plans contained

70 ALL HONORABLE MEN

a long-run program for assuring permanent German control of the
chemical industries in foreign countries^ Where necessary, they
said, this could take the form of stock interests in the foreign com-
panies. But experience in France changed these plans. The Germans
found it unnecessary to acquire ownership. With some pressure
based on business considerations, they found that a community of
interests could be formed between French owners and Germans,
This had the advantage of assuring firm co-operation instead of
recalcitrance. Even more important, in the event of German military
setbacks, such arrangements in all countries would provide a corps
of interested business associates in the "liberated'* territories who
would insist upon continuing their relations in some form even if
Germany were defeated.

The LG. Farben New Order plan was initiated by the Farben
management, acting on its own, to show the German High Com-
mand how the corporate expansion of LG, Farben as a business
proposition could be geared in with the interests of the German
government In establishing German power all over the world. This
close identity between the business interests of the company and
the national interests of Germany was not accidental. It was the
result of over twenty years of close working between the manage-
ment of German industry and the German government. Under this
working arrangement, the laws of Germany had been gradually
modified to give more and more assistance to the growth of organi-
zations like LG. Farben. Special tax concessions favoring the growth
of combines, modifications of the corporation law to give manage-
ment a free hand, government subsidies for special projects, all
strengthened the position of the combines in a geometric progres-
sion as their size increased. In rcturriy the greater size and weight
of the combines made them a more and more powerful instrument
of German policy abroad.

None of this development would have been possible without loans
from the Allied nations. These loans for reconstruction became
a vehicle for arrangements that did more to promote World War 11
than to establish peace after World War L The amount of the loans
to German private industrial interests was not large by present
standards. In the years from 1926 to 1930 they were roughly com-

HARE AND HOUNDS 7I

parable to the $275,000,000 invested by the United States Govern-
ment from 1933 to 1937 in the Federal Home Loan Bank system,
which enabled some fourteen hundred building and loan associa-
tions to stimulate home building and repair during the depression
years. But in Germany, the reconstruction loans to private business
took a different course.

Of the outstanding industrial loans, over a hundred miUion
dollars went to United Steel and its components; over sixty million
dollars to the two electrical equipment combines, Siemens & Halske
and A.E.G.; twenty-five million dollars to the Hugo Stinnes in-
terests; and slightly lesser amounts to the United Rayon combine,
VGF^ and to the major iron, steel and coal companies, including
Krupp and Good Hope.

The loans to banks and utilities followed a similar course. About
half of the bank loans went to the Deutsche Bank and Commerz
Bank. A third of the utilities loans went to the RWE electrical
combine, the Rhenish-Westphalian Electric Company, in which
Baron Kurt von Schroder served as a leading director, along with
Albert Vogler of the Stinnes and Siemens concerns, Hermann J. Abs
of the Deutsche Bank, and Carl Goetz of the Dresdner Bank. This
public utility combine supplied two thirds of all the electric power
consumed in highly industrialized west and southwest Germany.
The RWE controlled a power grid that stretched from the borders
of Holland to the Swiss frontier. It held participations in over
one hundred and forty enterprises including power-generating and
tramway companies, hard and brown coal mines, firms engaged in
designing and constructing power plants, river shipping com-
panies, and the Braunkohle-Benzin synthetic fuel company. This
latter establishment, one of the forerunners of the Four-Year Plan,
was a joint enterprise of the Belgian Solvay & Cie. of Brussels,
along with RWE and the steel firm of Friedrich Flick, LG. Farben,
the chemical trust, and the German government holding company
known as VIAG or United Industrial Enterprises. VIAG exercised
the over-all control of the synthetic fuel experiments under the
supervision of Hans Kehrl and Gustav Krupp. Kehrl was an
SS Brigade Leader and protege of Himmler who controlled a large
group of synthetic textile factories known as the Ring. This part

72 ALL HONORABLE MEN

of the German autarchy program was being developed with the
help of foreign loans long before the Nazis came to power.

In 1934, Wilhelm Keppler, in his capacity as Hitler s economic
adviser, asked Hitler to establish a Special Agency for the Develop-
ment of German Natural and Synthetic Raw Materials, commonly
known as the *'Biiro Keppler," to prepare programs for production
of synthetic textiles, synthetic rubber, synthetic fuel oil, gasoline and
lubricants, and synthetic edible fats and proteins. His chief col-
laborators on this project were Hans Kehrl, Paul Koerner, and
Paul Pleiger of the Dresdncr Bank. All four were part of the Ad-
visory Committee on Questions of Raw Material, headed by Goring
and Schacht, and all four in the Biiro Keppler laid the ground-
work for the over-all self-sufficiency or "autarchy" plan to prepare
Germany for the coming war. That was the Four-Year Plan created
in 1936.

Now that we had their own statement of some of the things they
had intended to do with their power, we still had to find out how
far the men of the "Keppler Circle" had been able to go in carrying
out their intentions — especially where they needed the help o£
their brothers overseas.

CHAPTER 6

Seek and Find

THE gold rush was going well. Armored convoys carrying Reichs-
bank gold and recovered loot were streaming back from points as
far as the Czechoslovak border. With something tangible like
looted gold to take in hand, the combat commanders were doing a
job that would make the Brinks Express Company turn green. A
trunkful of bullion would arrive, not in an armored car with some
armed men, but escorted by half-tracks with machine guns and one
or two light tanks with artillery. One Ninth Army convoy with
seventy million dollars in gold from the Reichsbank branch at
Magdeburg came in with air cover buzzing overhead. The half-
billion dollars or so of valuables accumulating in the vault down-
stairs was secure from burglars. The entire block around the Reichs-
bank v^as behind barbed wire and sandbagged machine-gun nests.
There were antiaircraft emplacements on the roof and a Sherman
tank and crew sitting in front of our door.

A haltbillion dollars in treasure was something the army could
handle. The pattern for dealing with such things was as old as
Hannibal. The records we had just rescued from the headquarters
commandant's bonfire were something new. In them might be a
clue to the origins of a war costing a hundred billion a year; yet
we were in trouble with the headquarters commandant again. At
Kronberg in the Taunus, a few miles outside of Frankfurt, we had
found the files of the metals trust, the Metallgesellschaft, in the
Schloss Friedrichshof, seat of the royal family of Hesse. The head-
quarters commandant wanted immediate possession of this castle at
Kronberg so as to turn it into a club for SHAEF officers. If we did
not remove the files immediately, they would be turned back to the

74 ALL HONORABLE MEN

MetallgescUschaft management or dumped somewhere outside the

castle grounds.

The MetallgescUschaft management would not have been able
to house the records in their handsome office building next to the
Opera House because Colonel Crisswall, the military governor of
Frankfurt, had taken the building as headquarters for his military
government. The company's employees inhabited a maze of gopher
holes in the bombed-out block of buildings beyond. The company
officials said that they would be delighted to get their records back
and tuck them away safely in these catacombs.

In the end the Metallgesellschaft management won out. We were
already spread too thin to handle another big moving job while
following the leads which the Farben investigation had already un-
covered. As soon as the Farben people got any hint of what we
might be looking for they tried to beat us to it. There seemed no
end of ways for men like von Schnitzler to get messages out of the
jail telling employees where to find important documents so that
they could be hidden or destroyed.

Our few weapons carriers and command cars were busy all day
and into the night. Our men were finding cans of microfilm buried
in gardens, hidden in barns, suitcases, clothes closets, within a fifty-
mile radius of Frankfurt, For one hundred reichsmarks a month a
Farben official had rented the refectory of a monastery near Wiirz-
burg to store "personal effects" of bombed-out employees. The sixty-
eight packing cases turned out to contain copies of over five thousand
agreements between I.G. Farben and companies in France, Britain
and the United States in the field of dyestuffs and heavy chemicals
alone.

We needed manpower and wc needed understanding from the
new crop of army officers who were moving up in the wake of
battle. Up to this point co-operation had been startling in comparison
with what I had been led to expect. Practically everyone I had run
into, from GIs to generals, understood quickly what we were after
and why it was important.

A T/5 at one division headquarters was helping me to find the
chief of staff. The soldier was from New York and had worked for
the Hugo Stinnes firm. We had hardly started walking before he

SEEK AND FIND 75

told me about the "cartel" he had worked for in New York and
his opinion of cartels. There was the jeep driver from east Baltimore.
Shortly after the armies reached the Rhine at Cologne, we were
driving along the west bank within sight of the undamaged I.G.
Farben plant at Leverkusen across the river. Without knowing
anything about me or my business he began to give me a lecture
about I.G. Farben and to point at the contrast between the bombed-
out city of Cologne and the trio of untouched plants on the fringe:
the Ford works and the United Rayon works on the west bank, and
the Farben works on the east bank. There was Major General
Malony, commanding the Ninety-fourth Infantry Division, who
seemed to know as much about the problem as the Senate com-
mittees that had investigated patents and cartels during the war.
So it had been up and down the Une, until now. It was as though
being in combat had produced a sharpened awareness that was sud-
denly missing as the rear echelons moved up.

Now it was like the leaden skies and snow flurries outside in
early May, when one might have expected a warm sun. The
housekeeping detachments of the headquarters command and the
spit-and-pohsh military police of the Provost Marshal were moving
in to "police up,'* unfurl the red tape, require mess passes, billeting
passes, trip tickets — to challenge any unusual act and, if in
doubt, to stop it. We had to have more help. As things settled
down it seemed we would need two men to do what one had
done before: one to do the work and one to go along and ex-
plain why.

At SHAEF headquarters in the Trianon Palace Hotel at Versailles
we had a meeting of United States and British intelligence officers
to consider making a list of key financiers and industrialists. The
idea was to list about five hundred high-powered executives and
managers of the biggest industrial and financial combines, and per-
haps twenty-five hundred of their principal assistants and depart-
ment chiefs. This list would be furnished to the counterintelligence
units of all army divisions and regiments and to all CIC detach-
ments and military government officers in the field, with instructions
to notify us when any of the listed people turned up. The instruc-
tions to accompany the list would not only provide a guide to CIC

76 ALL HONORABLE MEN

men in the field who were screening German civilians, but would
give authority to our investigators to arrest and question high-
ranking businessmen whom we ourselves tracked down.

At the same time we saw that official ''cables" — army lingo for
telegrams — went to all forward headquarters and army groups to
announce that we would be establishing new centers of investiga-
tion in the Ruhr and other localities, similar to the one we had
already set up at Frankfurt. Copies of these cables served for some
time as an open sesame to get where wc needed to go without too
much argument or explanation.

That does not mean we had no arguments. My British opposite
number had something to say about what we could investigate in
the Ruhr, which Vv^as being taken over as part of the British zone of
occupation. Colonel John R. Kellam had been in charge of liquidat-
ing British foreign investments during the war, before Lend-Lease,
to get dollars to pay for Britain's lifeline. He was dour about the way
Britain's economy had been bled white while wc in the United States
debated through the Brst two years of war. He had little sympathy
for what he called the American passion for trust busting"; but he
did want to go after the assets that Germans had spirited abroad.
There, at least, we were on common ground. His superior. Brig-
adier M. J. Babington-Smith, chief of the Financial Branch of
SHAEF, in private life a director of the Royal Bank of Scotland
and partner in the "City's" Glyn, Mills & Company, was more
squarely on all fours with my point of view, which was that set
out in our written statements of policy from Washington: that we
were interested in all devices by which power had become con-
centrated into the hands of those responsible for the rise of the Nazi
Party to power. Brigadier Babington-Smith's view was also shared
pretty generally by S. P. Chambers, of the British Treasury, slated
to become Colonel Kellam'5 superior as head of the Finance Division
in the British Element when SHAEF dissolved. I had talked to Mr.
Chambers in London several v/eeks before.

It was not long before we faced a test of how far our investiga-
tions could be carried v/ithout running into jurisdictional questions
with the British element. One of my colleagues from the Depart-
ment of Justice, Philip W. Amram, special assistant to the Attorney

SEEK AND FIND 77

General, came in from the United States on a No. i priority, carry-
ing special authorizations from the Secretary of War, He was to be
given every assistance in digging up evidence for a case on which he
was government counsel. The Standard Oil Company of New
Jersey had filed a suit against the Alien Property Custodian to re-
cover the ownership of some shares of stock and over two thousand
basic patents. Standard claimed to have bouglit these rights in good
faith, before the war, from LG. Farben; but the Custodian had
seized them as property being held under a cloaking arrangement on
behalf of Farben. Jersey promptly, and with a display of righteous
indignation, filed suit in the United States District Court for the
Southern District of New York to get it ail back. The patents were
quite valuable, covering the basic technology and new developments
in ail fields of mutual interest to Standard and Farben, except for
the buna rubber patents, which had been the subject of a separate
deal. The papers certainly appeared to be in order, and at the time
Phil Amram came to Europe it looked as though Standard might
win.

Co-operation from the British side was immediate and whole-
hearted. During the next two days after Amram's arrival, the in-
vestigations took shape. The three Farben bigwigs, Schmirz, Ilgner,
and von Knieriem, were in custody at the ''Chateau Transit Camp"
near Versailles. Major Edmond Tilley of the British Intelligence,
who had done the interrogations for the poison-gas team, flew back
to work on the Farben trio with Amram. They had to get the story
behind a meeting held at the Hague in September 1939, between
Frank A. Howard of Standard Oil and Fritz Ringer, von Knieriem's
^sistatnt. This was the meeting at which the transfer of stocks and
patents from Farben to Standard had been arranged.

Major Tilley and the Standard Oil investigation which he was
making for Phil Amram dropped from sight for a few days while
the Major's party searched in the field for records. But I heard
from him again when I joined my group at Essen on May 23.
Colonel Kellam handed me a note from Major Tilley, dated from
Frankfurt the week before; "Dr. Biitefisch, chief of LG. Farben
synthetic oil production, Leuna, has admitted that Dr. Hahn, his
deputy, has hidden papers, including secret contracts and letters

yS ALL HONORABLE MEN

from and to Ringer at the following address: Bad Sachsa, Haus der
Dynamic A.C'

Bad Sachsa showed on the map as a point in the midst of the Harz
Mountains, a few miles from the Devil's Pulpit on the Brocken,
traditional site of the Witches' Sabbath. The Hitler Youth had
revived the legend and held Walpurgisnacht celebrations annually
on May first. We had reports that in the same area numbers of SS
troops had declined to celebrate V-E Day and were playing come-
and-get'it with units of the Fifth Armored Division. As we got
together our party of ten to make the circuit of the Harz, looking
for records of Krupp, Mannesmann, the Stahlwcrks Vcrband, and
the Standard Oii-LG. Farben correspondence, an officer of the
Ninety-fourth said to hell with the regulations and made me put
a pistol in a shoulder holster under my field jacket.

For two days we prowled among the rocks and cowpaths that
served for roads in the Harz Mountain area and finally located
several cabinets full of documents hidden underground in an air-raid
shelter at Bad Sachsa. It turned out that the very building the
American occupying troops had chosen for a headquarters was the
I.G. Farben-owned **Haus der Dynamit A.G.** Colonel Cole, the
commanding officer of Combat Command "B** of the Fifth Armored
Division, was amused when we turned up these documents right
under the window of his office and still others in the walls of his
officers' mess. There were heavy loose-leaf files of correspondence
between Frank A. Howard and Fritz Ringer; and cabinets filled
with minutes of meetings and interoffice correspondence about the
Standard Oil negotiations. Colonel Cole kindly furnished trucks to
haul tliese back to Frankfurt where they were compared with other
papers, and the documented story pieced together.

The papers we picked up indicated that Mr. Frank A. Howard of
the Standard Oil group and Dr. Ringer of LG. Farben had met in
the last week of September 1939, at The Hague. They prepared a
document that became known as the "Hague Memorandum." This
document appeared on its face to be an agreement under which
LG. Farben sold to Standard Oil of New Jersey various patents
and shares of stock. Actually the two men also prepared a separate
agreement, kept secret, under which LG* Farben retained the right

SEEK. AND FIND 79

to cancel the transfer and get its properties back as soon as it was
safe to do so. Mr. Howard did not even keep a copy of this agree-
ment* He signed the original and the carbon copy on behalf of
Standard Oil and handed both copies to Dr. Ringer, who took them
back to Frankfurt.

The Standard Oil case might very well have had a happy ending
for the fraternity brothers if tlie suit had been filed in 1947. Even by
1946 it was to become very difficult for United States government
representatives to get faas from German files. It was not long be-
fore we had to show cause why we should be permitted to prowl
about among the business papers of reputable German concerns.
By X947 investigations which the Germans considered troublesome
would appear doubly objectionable to American businessmen acting
as military government officials in Bizonia. Investigations that might
disclose embarrassing transactions between American and German
companies were called a "waste of taxpayers* money." Also, trou-
bling busy German industrialists with unfriendly questions would
tend to "interfere with German recovery*' and might arouse ''an-
tagonism." In the end we were caught between businessmen repre-
senting private interests and others of the same persuasion holding
official positions, where they had power to change the orders under
which we operated. But for a brief period in 1945 matters were not
so well under control. True, we found a number of members of the
international brotherhood, commissioned as colonels and brigadier
generals in the army, moving about rather freely in the field on
matters of their own concern; but by the same token it was also
possible for representatives of the government to get around freely
as we all did in the Standard Oil case.

The documents needed by the government to establish the falsity
of the Standard Oil claim were finally shipped by air back to the
United States, along with Dr. von Knieriem as a government wit-
ness. Dr. von Knieriem, who had supervised Ringer's work, had
annotated his own copy of the secret Hague Memorandum with
comments showing its true intent. One of these phrases alone should
have been enough. It was a marginal note, **Nach Kriegs Kamou-
flage^' (postwar camouflage).

Not only was this case unusual in that enough trained manpower

8o

ALL HONORABLE MEN

was available, for once, to track down the evidence, and that con-
ditions permitting full investigation happened to prevail, but be-
cause the Federal Courts in dealing with the evidence used unusually
strong language to describe what the fraternity brothers had done.
The following examples from the opinion of the Circuit Court of
Appeals may illustrate:

The negotiators prepared the so-called Hague Memorandum
which was neither an accurate summary of the past dealings of
their companies, nor complete and faithful representation of the
agreements made at the Hague. • • ,

The real agreement which was made by Mr. Howard and Dr.
Ringer and which was later ratified by their principals can be
gleaned only after a scrutiny of many documents and the oral
testimony of Mr. Howard. . . .

The Court found that these were sham transactions designed to
create an appearance of Jersey ownership of property interests
which nevertheless continued to be regarded by the parties as
I.G. owned. The parties intended that after completion of the
war and the resulting disappearance of the danger of United
States Government controls the property would be formally re-
turned to I.G. and the pre-war relationship resumed. . . .

On the witness stand, Howard, testifying concerning the Hague
Conference, was, in the opinion of the Court, not a credible wit-
ness.

In efJect the courts held that the Standard Oil Company had tried
to put across a misrepresentation in order to protect an outpost for
LG. Farben. Whereas President Roosevelt had referred to the use
made of the I.G. Farben trust by the Nazis, and had insisted on the
"eradication of these weapons of economic warfare," Standard Oil,
in the middle of the war against the Nazi state, had invoked the
aid of the Federal Courts to defeat the measures of the United States.

Frank A. Howard was not prosecuted for perjury. The District
Court and Circuit Court of Appeals merely declared he was not a
"credible witness." The Supreme Court did no more than sustain
the action of the lower courts in upsetting the sham transactions and
letting the Alien Property Custodian keep the patents and stock.
Mr. Howard retired gracefully in 1945, full of honors, as vice

SEEK AND FIND

81

president of Standard Oil Company of New Jersey, having retired
the previous year from his other position as president of the Standard
Oil Development Company.

This arrangement between Standard and Farben was only one
of many conspiracies between German business leaders and their
counterparts in the United States and Britain to help in keeping alive
bridgeheads for future ''economic warfare." At the time we dis-
covered them it would have been hard to forget the other side of the
coin: that these same German organizations — LG. Farben, Krupp,
Flick, Mannesmann, Siemens & Halske, and a few dozen more —
had shown their less gentlemanly and more brutal side in the slave
camps and murder factories, and in the looting of occupied Europe,
all by ^'legal" means under Nazi laws. Before the press carried pic-
tures of the murder camps at Bclscn and Auschwitz and the records
of I.G. Farben's poison gas experiments on slave laborers, It might
have been possible to concede that some American businessmen
connived at preserving these organizations for the postwar period
without knowing the awful truth. We hoped that the record after
1945 would not reveal any conniving in the revival of similar types
of "industrial*' organizations, or any reliance on the same men to
guide Germany's economic recovery.

CHAPTER 7

The Heavies

THE House of Krupp has been a symbol o£ German militarism
for generations. The Krupp family mansion, the Villa Hiigel, on a
hill overlooking the Ruhr River at Baldcney just south of Essen,
was more than a symbol. It was a very big house. With the Krupps,
bigness became a fine art. Set among hills, the Villa Hiigel was
not dwarfed by its surroundings but dominated them. At sunrise
on a summer morning, when the hills by the river are still steaming
as though they had their feet in hot water and a blanket around
their shoulders, the villa stands up with its blackened stones and
square bulk untouched by fog and mist. It looks like the Carnegie
Museum at Pittsburgh. The main house has one hundred and
twenty rooms, and the "little house" attached to it a mere ninety.
In the dining room, twenty-five by ninety feet, the sixty-foot dining
table was covered by a one-piece damask cloth. The dining room
was small in comparison with the main salon, size forty by one
hundred feet; but the furnishing of both left no feeling of empti-
ness.

The Villa Hiigel, taken over by the "T" force unit of XX ii
Corps, was operated as a combined billet, mess and office for inves-
tigators working in the area. All investigation units were inter-
viewed at the end of each day so as to build a pool of information
on records and personalities. We were welcome to make good use
of these facilities. Then, for help in following leads, or putting a
guard on records we considered important, the division headquar-
ters in the particular area detailed men for the job. It made a good
headquarters for our investigations in the Ruhr, not only because
it was one of the few buildings in the area untouched by bombs,

THE HEAVIES 83

but also because investigations go more easily if they fan out from
a focal point from which the activities under investigation were
originally directed. The memory of minor employees for appar-
ently unimportant details, and the jottings, diaries and other notes
that accumulate around a headquarters supply the clues to the char-
acter of the whole operation.

As we began to look at the Ruhr and its heavy industry from
our starting point in the center, we could see some of the relation
of the Krupps to the Nazi state. Prewar movies had pictured the
goose-stepping Nazis as the absolute masters of Germany. Hitler
had only to command and the most powerful of the pre-Nazi
potentates would snap to obey — or else. Our poking about in the
Villa Hiigel and questioning of Alfried Krupp and his works man-
agers erased that impression. Adolf Hitler and his Party had never
been allowed quite to forget that they had depended upon the indus-
trialists to put them in office, and that in the future they could go
further with the industrialists* help than without it. In the earlier
days of the Third Reich, Hitler never made a major decision with-
out being sure in advance that he had the backing of the Krupps
and the other Ruhr and Rhineland industrialists. Before he em-
barked on his big purge and reformation of the Nazi Party in
July 1934, Hitler went first to the Villa Hiigel for a long con-
ference.

Generations of Krupps had been accustomed to sitting at the
Villa Hiigel and planning what the Krupp works would do. Some-
where in the recesses of this mausoleum was born the thought of
the Big Bertha of World War I. Perhaps it was only natural that
World War II should have had its enlarged counterpart in Great
Gustav, a mammoth gun ninety feet long with a bore thirty-two
inches in diameter and capable of throwing its four-ton shell thirty
miles. Great Gustav was the pride of the Krupps and the despair
of the Wehrmacht. Only five such guns were made, at the expense
of tying up a large part of Germany's biggest gun shop for the
entire war. The one Great Gustav to see action was used against
Sevastopol in the Crimean campaign, but only after railway bridges
had been reinforced and traffic on the entire rail system from Essen
to Sevastopol disrupted to make way for the monster. The second

84 ALL HONORABLE MEN

gun of its type got bogged down and lost somewhere on the way

to the Russian front. Numbers three and four were picked up by
the British. The last Great Gustav never left the Krupp gun shop.
The lathe was hit by bombing raids in March 1945. Considerable
tonnage o£ steel partially turned into projectiles lay scattered
throughout the shop.

The House of Krupp was many times a source of grief to Albert
Speer, Minister of Armaments, in his attempt to get the Wehrmacht
the types of equipment it wanted for the v/ar. The Armaments
Ministry sometimes would have preferred to use materials and
manpower for other purposes than those decided upon by the
Krupps. But not all the relations between important German in-
dustrialists and the German government followed the pattern of
mutual help that had been the case with LG. Farbenindustrie.
The industrial aristocracy of the Krupp dynastyj even though they
represented far less power than did tlie LG» Farben combine, had
simply assumed as a matter of right the prerogatives that put them
above government, and especially government by upstarts.

One began to see some basis for Adolf Hitler's reported appetite
for chewing oriental rugs. In dealing with the Krupps, the question
was not what the Krupps could do for the v/ar effort, but what
the war effort could do with what the Krupps had to offer. A mere
Nazi, Hitler faced a problem in trying to deal with these people
who knew exactly what they wanted their factories to produce, and
when and where.

Gustav Krupp von Bohlen und Halbach and his son, Alfried, were
not among the earliest supporters of Hitler and the Nazis. They
joined in with the rest of the Ruhr and Rhincland industrialists in
response to Hitler's appeal for funds only after a meeting of leading
industrialists at Berlin on February 8, 1933. Up until that time, the
Nazis and their program had appeared too radical for the conserva-
tive tastes of the Krupps. An important consideration behind the
ultimate sponsorship of the Nazis by Gustav and Alfried vvas their
experience with a long strike in 1932, which the Nazis helped them
to break. The Krupp management showed a great deal of enthusi-
asm for the Nazi labor policy because they fek that discipline and
authority was needed in the ranks of labor. After the licrlin meet-

THE HEAVIES B$

ing of February 8, 1933, Gustav Krupp accepted the chairmanship

of the Reich Association of German Industry and undertook to
reorganize German industry to ''bring it into agreement with the
political aims" of the Nazi Party.

The somewhat arm's-length relations between the Krupps and
the Nazis was by no means one of antagonism. The Krupp hold-
ings fared very well throughout the Hitler period; and the fam!ly*s
wishes were always highly respected. From the time the original
jRrm was founded in 1812 until the grandson of the founder died
in 1902, leaving a daughter, Bertha, as heir, the company had been
a private family enterprise. In 1903 it became a corporation, Fried-
rich Krupp A.G. But in 1943, by decree of the Fiihrer, the Krupps
were given the privilege of reconverting the corporation into a pri-
vate holding, with Bertha and Gustav's son, Alfried, as sole owner.
Normally employing about two hundred thousand persons, the
firm during the war maintained in addition to its German employ-
ees an average of over fifty thousand foreign workers and nearly
twenty thousand prisoners of war, all of whom got the full benefit
of the new labor policy, including the discipline and authority which
had been lacking at the start of the 1932 strike. Especially satisfac-
tory from some points of view was the "extermination through
work" program for certain classes of concentration camp workers.
In the rarefied and museum-like atmosphere of the Villa Hugel,
Alfried Krupp, who was under house arrest in the gatekeeper *s
lodge, could make the idea sound almost digestible until you thought
of what his well-rounded phrases were actually saying.

Our inquiry into the affairs of the Krupps was itself an offshoot
of a larger investigation into the operations of the big Ruhr steel
combines. During the few days before we were called into the hunt
for evidence in the Standard Oil case, I had made a hurried trip to
the Ruhr to start the investigation, heading for Diisseldorf. There
the Stahlhof stood as a ten-story monument to Fritz Thyssen's
United Steel Works, in a country where a ten-story anything was
rare. The Stahlhof had housed the officers not only of the steei trust,
but also of the Stahlwerks Verband, the German national steel
cartel, and of Stahlunion Export, United Steel's **foreign relations"
department. Stahlunion Export had controlled the steei trust's one

86

ALL HONORABLE MEN

hundred and seventy-five foreign branches in co-ordination v^^ith the

foreign organization of the Nazi Party.

The army had picked the Stahlhof for the Ninety-fourth Divi-
sion headquarters. After Frankfurtj the pattern w^as becoming fa-
miliar. There was a certain poetic irony in the way these {ortrcsscs
of German economic warfare converted so readily to the needs of
a mihtary headquarters. A few blocks away, the tax office for the
administrative district of Diisseldorf probably contained more cu-
bic feet of usable office space, and was in fact being converted to
house German administrative agencies and several American and
British military government detachments. But the corridors and
offices had a hospital-like plainness and uniformity, more reminis-
cent of a civil service building, whereas the Stahlhof pyramided
upward with a sense of hierarchy and increasing magnificence. The
approaches to the high-ceilinged head office in the Stahlhof, at the
top of a broad, sweeping staircase^ set off by tall doors of dark
wood and several heavy bronze figures against a light wall, created
an impression of overwhelming power. It would take a man of
very strong character indeed to work in such surroundings with-
out developing a power complex.

The military government officer of the Ninety-fourth, Colonel
St. Claire, had his own staff set up in the tax office building. We
took over temporary offices there, too, while we plotted an itinerary
to the offices of the important steel combines and other firms on
our lists. Our m^p then showed where we might expect to find their
records and key officials.

In the next two days, May 17 and 18, we covered a lot of terri-
tory and discovered a great deal about the stamina and doggedness
of the men who had run the Ruhr. Early in 1945, the Rhine cross-
ings, first at Remagen to the south and then at Wesel to the north
of the area, had produced a pincers that encircled the ''Ruhr pocket"
and met between Hamm and Paderborn at the headwaters of the
Ruhr River. Through all these military movements, the managing
directors of the big industries acted like a bunch of ants whose hill
is being disturbed. Each one grabbed a large egg, consisting of the
files and papers he considered most important, and took it some-
where. What with the bombings and tlie coming and going of

THE HEAVIES 87

German military units on all the roads, this must have been a feat

of considerable ingenuity. It would be hard to count the number
of times during the next two months that we were to travel sev-
eral hundred miles to find tremendous stacks of recently moved
papers that must have required six or eight vans.

The net result was that a great deal of the Ruhr puzzle was
unscrambled and laid out for an investigation, much more com-
pletely and visually than if the records had all been left in one
building to be sorted out by the investigators. It was worth driving
miles to sec the inner workings of Ruhr finance and industry un-
wound and laid out at different points on the map for inspection.
By Friday evening, the eighteenth, our map looked like the end
of an amateur taffy pull

From our first two days' work, we already had dividends to
show. We had picked up two suitcases of papers belonging to
Friedrich Flick, the self-made steel man who had multiplied his
holdings with slave labor and the Nazi "Aryanization'* laws. He
would have been better off if he had stayed and burned the papers.
They showed that his forty-thousand-doliar annual premiums to
the Himmler fund had yielded the best from the SS labor pro-
curement service. The SS had provided Flick with unlimited quan-
tities of slave laborers from the concentration camps, at the very
low rates charged to special "subscribers," through a corporation
known as the Deutsche Erd und Steinwerke.

We had also struck pay dirt in another quarter. In a file cabinet
at the Mann^smann pipe and tube combine we had found a list
of places to which records had been moved, and a secretary's nota-
tions on where the top directors had gone, including Wilhelm Zan-
gen, one of the charter members of the "Keppler Circle."

At the offices of the armament firm, Rheinmetall-Borsig, most of
the main records were intact all the way back to the time of the
French occupation of the Ruhr in 1923. At that time the company
had gone ahead designing and manufacturing artiHery a few blocks
away from the occupation headquarters. The finished ordnance had
been tested at a secret firing range outside the occupied area, in
the Liineburger Heide between Ulzen and Celle, a few miles off the
main road from Hannover to Hamburg. Following our growing

88

ALL HONORABLE MEN

impression that novelty was not the chief characteristic o£ the men
we had to deal with, we were to find the missing financial records
and most of the company's officers a few days later at the old hide-
out, not far from where Heinrich Himmler himself was picked up.
Himmler committed suicide at Liineburg on May 23.

As we came back to the G-^ mess on that first Friday evening,
I was handed a message that had been phoned mouth-to-ear all
the way down the ladder from SHAEF Forward to Frankfurt to
Wiesbaden to Bad Neuenahr to Hilden to Diisseldorf. The message
was terse: "Report to airstrip Y-57 at Vorst near Siichteln at 1000
hrs. Saturday, 19 May, by order of General McSherry.** Even a
civilian, privileged to question why, had no way of talking all the
way back to the man who knew. General Frank J. McSherry was
the American deputy to General Grassett, the British head of
SHAEF G-5. The only thing I could do was to keep the mysterious
appointment.

It would have been hard to think of a worse time to be called in
to give an account of what we were doing. From every indication,
if we just had the manpower to follow a few of the most impor-

tant threads, we would have a much more devastating picture than
anything we had seen from our discoveries in the United States. Yet
all this was mere possibility for the future. If we were to be pulled
out and ordered to stop the investigations, it would not take the
Germ.an industrialists long to close the curtain.

At the airstrip these doubts were erased. Major Vaughn, General
McSherry's executive officer, had come up with the crew. He said
we were heading for Reims; that Senator Kilgore had arrived with
five other members of the Senate Committee on Military Affairs
and had asked to see me. The day was suddenly much brighter. I
actually enjoyed the ride as we followed the Paris beam along the
Meuse, across parts of Holland and Belgium, and turned off over
the French cathedral town of Laon for the run into Reims.

We found Senator Kilgore and the others with General Eisen-
hower in the ''War Room" of the red schoolhouse. They were hav-
ing their pictures taken near the table at which, twelve days before,
the German High Command had surrendered. As the photographer
packed his equipment Senator Kilgore got right down to business.

THE HEAVIES 89

His subcommittee, including Senators Ball, Brewster, Ferguson,
Mitchell and Tunneli, was investigating the supply situation in
connection with redeployment of forces to the Far East. But Presi-
dent Truman had asked him to get in touch with me to find out
how our investigations were coming. The Attorney General had
been concerned about reports of our difficulties in keeping records
from being dispersed, as at Frankfurt, and had spoken to the Pres-
ident about it. The President had told Senator Kilgore to have the
important records flown back to the United States, if necessary, to
keep them from being stripped by the Germans.

We continued the discussion at dinner and on the plane back to
Paris. I pointed out that in order to find the key to what we were
looking for we had to locate not only papers but also the men who
made the papers significant. This job had to be done in the field,
where we could interrogate anyone from the chairman of the board
to the junior file clerk.

Senator Kilgore wanted to know what Washington could do to
help. On Sunday, May 20^ I brought General McSherry and Colonel
Bernard Bernstein, deputy chief of the Financial Branch, to the
Brown House at St. Cloud where the senators were staying. We
discussed what we had been doing and in the end agreed on a pro-
gram- Colonel Bernstein was leaving for Washington the following
Tuesday. Senator Kilgore asked me to draft letters to the President
and to the Attorney General and Secretary of the Treasury, out-
lining the results of our conference and urging that an additional
force of at least two hundred and fifty investigators, together with
a supporting staff, should be thrown into the field to round out the
job. On Tuesday, the Senator approved the drafts but added
strengthening statements of his own before they were typed for
his signature. To the President, he added: "It is my conviction
that a great opportunity exists at the present time, and that our
failure to take the required action would amount to a national
catastrophe."

Tuesday night Colonel Bernstein took off, armed with the three
letters and a personal note from the Senator to Ed McKim, admin-
istrative assistant to the President, urging an early appointment for
the Colonel. Colonel Bernstein had two interviews with President

go ALL HONORABLE MEN

Truman and returned two weeks later with full approval to recruit

the staff we had requested.

On my way back to the anthill in the Ruhr, I flew first to Frank-
furt to see how our small contingent was getting along in pursuit
of the contributors to the Himmler fund and other key figures.
They were doing very well considering all the difficulties. They had
pulled together much more than we had known before about I.G.
Farben and two other closely interconnected groups, the manage-
ments of the Metaligesellschaft and of the precious metals group
known as "Degussa," short for Deutsche Gold und Silber Scheidean-
stalt. Also Friedrlch Flick had been picked up and added to the
growing reference library of Himmler fund contributors in the
Frankfurt jaik The firm of Robert Bosch of Stuttgart had yielded
a great deal of new light on old methods of foreign camouflage.
The French pursuit of the Rochlings was reported to have been suc-
cessful. The men from the electrical equipment combines, Siemens
& Halske and the Allgemeine Elektrizitiits Gesellschaft, remained
to be picked up as soon as Berlin was accessible. Gerhardt Westrick
was still on the loose; but he was being tracked. We still needed
to question a group of top men in the Ruhr to sketch in more of
our picture of the economic backbone of the Nazi State-

The Villa Hiigel was hot with discussion about these men when
I returned to our joint Anglo-American detachment of investigators.
One evening, the l^ritish Control Commission's director of economic
affairs, Sir Percy Mills, dropped in with his American opposite num-
ber, Brigadier General William H. Draper, Jr., an investment
banker. At breakfast the next morning, Major Ernst Ophuls, my
American executive oflScer who had been heading our investigation
of the Krupps, commented on how strangely the policy of removing
Nazis was working out. The Public Safety Branch of Military Gov-
ernment had screened domestic servants at the Villa Hiigel the pre-
ceding day and found that the laundress was a member of the Nazi
Party. Major Ophuls said that it was curious to see so much effort
being devoted to purging washerwomen when men like Edouard
Houdremont, Wilhelm Tengelmann, Heinrich Dinkelbach and
Hugo Stinnes were still running around loose and keeping their
jobs. Sir Percy wheeled on Ophuls. "What's wrong with them?"

THE HEAVIES 9I

he demanded. 'They were not Nazis; they are businessmen."
Ophuls began in a conversational manner to describe some of the
things we had been finding out about Sir Percy's businessmen; but
Sir Percy cut back sharply and indignantly. General Draper's gritty
voice threw in a conversation-stopper with the tone of a brigadier
general addressing a major. The Major quietly ate his oatmeal,
as though it were spinach with sand in it.

Keeping in mind that Gustav Krupp and the other Rhineland
industrialists were not Nazis, but businessmen, we wanted neverthe-
less to fill in some details of the success they had enjoyed. Gustav
Krupp on April 6, 1938, after the capitulation of Austria, had
expressed ''deep appreciation to our Fuhrer'* for fulfilling "centuries-
old dreams." On October 13, 1938, after the occupation of the
Sudetenland, he had spoken of the "world-encircling success brought
about by tlie Fuhrer*s faith and strong will/*

Without the Fiihrcr's help, after World War I, the Krupps had
successfully prosecuted a claim for ^^65150,000 against the Vickers
armament firm in Britain for patent royalties on all the hand-
grenade fuses that Vickers had turned out for the British army
during that war. In settlement, Vickers had turned over an inter-
est in a steel works in Spain, which the Krupps found very useful.
The Versailles Treaty limited their steel and armament manufac-
turing activities inside Germany.

The Krupp records confirmed that in many cases this firm had
used its patents to fulfill old dreams. At the time of World War I
Krupp had owned two basic patents in the United States covering
the manufacture of stainless steel. These had been seized by the
Alien Property Custodian and sold to the Chemical Foundation,
which then issued licenses to American companies. After the war
ended, however, two Krupp patent applications, which had not been
seized by the Custodian, were approved by the United States Patent
Office. The patents finally issued to Krupp in 1926. Krupp promptly
informed all American companies making stainless steel that their
licenses from the Chemical Foundation were worthless, because
they were now infringing upon the new patents. The American
companies capitulated rather than face protracted litigation.

In 1928, Krupp organized the Krupp^Nirosta Corporation of

g2 ALL HONORABLE MEN

Delaware, as a patent holding and licensing company. Through its

licensing system, Krupp-Nirosta was able both to restrict stainless
steel production in the United States and to send reports to Essen
showing the exact production in the United States of special steel
for turbine blades, aircraft exhaust systems and other uses requir-
ing rustproof or acid-resisting metal.

The president of Krupp-Nirosta was a German citizen, Emil
Schill, who had moved to the United States in 1905 to represent
various German industrial interests including the iron and steel
business of Fritz Thyssen and the Krupps. During the next thirty-
odd years he gained a considerable experience in representing these
German firms. In April 1939, Dr, Schill had felt depressed over
conditions in the United States. "The waves of anti-Nazi feeling
and movement are rising higher than ever before. . . . You can
well imagine that under such conditions life is not at all a pleas-
ure here.*' In May 1940, after the Germans occupied France, Dr.
Schill was happier. He wrote to Essen: **What our soldiers accom-
plish on land, in the air, and on the sea, is simply unbehevable. No
wonder that I buy five to six papers daily."

In December 1939, Dr. Schill sent a proposal to Essen under
which Nirosta would take over Krupp s business in the western
hemisphere for the duration of the war. As Dr. Schill put it, "There
will be many instances where customers of Krupp's special prod-
ucts, who are now cut off from Germany, will look for replace-
ments in American markets." If Krupp-Nirosta took over, he wrote,
"The advantage for Krupp lies perhaps less in the sharing^ of the
profits of such devils, than in the maintenance of contact with for-
mer customers, and that you, upon the return to normal conditions,
would be posted as to what and from whom the temporarily lost
customers had bought in the meantime."

Krupp-Nirosta was, however, for legal purposes a non-German
corporation having nothing to do with the Krupps. The Krupp
firm on February i, 1937 had been unable to redeem certain bonds,
part of the Young Plan loans from American investors. This de-
fault occurred because of the Nazi foreign-exchange controls. To
avoid attachment of the Krupp interest in Krupp-Nirosta by the
American bondholders, Krupp transferred the ownership to a

THE HEAVIES 93

Dutch banking firm, H. Albert de Bary & Company of Amsterdam,

in May 1937* This camouflage was not wholly successful, because
one American group of bondholders managed to find enough evi-
dence of the switch to get a court order attaching the Krupp-Nirosta
stock. Krupp, in 1939, reached a compromise with the security
holders and immediately set about arranging a new camouflage
that would work better during the coming war. To carry out this
arrangement the Dutch bank sold its interest in Krupp-Nirosta
to an independent company, Wolframcrz A.G, of Glarus, Switzer-
land.

In a Krupp iron mine we found three large loose-leaf binders
of Krupp records marked " Wolframerz A.G., Glarus.** They showed
that the "independent** Swiss firm had retained Dr. Martin Louis,
a director of Krupp, as consultant to guide their dealings with
Nirosta. The Swiss firm had continued the Krupp practice of nam-
ing Emil Schill and Hans von Briesen to serve as their proxies at
stockholders* meetings in the United States. The Nirosta group
had continued to send the reports on American stainiess-steel pro-
duction to Essen. In August 1939, Schill was in Germany and wrote
to Essen from Stuttgart asking for an introduction to Wolframerz
so that he could pay his respects to his parent corporation. Dr.
Alfred Busemann of Krupp wrote Schill: "V/e would rather you
did not visit Wolframerz. They are merely a holding company, and
I do not want to divulge to them anything more about Nirosta
which would probably be unavoidable if you visited them.'*

In January 1940, the Nirosta management in the United States
had become worried about the sufficiency of the Swiss camouflage.
They persuaded Krupp to allow a change of the Krupp-Nirosta
name to "Nirosta Corporation." They also proposed that the con-
trolling shares be transferred to American ownership, with an ofF-
the-record agreement for repurchase by the Krupps after the war.
The Krupp officials rejected the scheme in July 1940 because they
Were sure Germany was winning the war and they felt that the
Swiss camouflage was enough. In this respect they were wrong.
When the United States entered the war, the Alien Property Cus-
todian seized the shares as German-owned, a contention which the
Krupp records themselves now proved.

p4 ALL HONORABLE MEN

On May 24 and 25, Colonel Kellam and his expert accountant,
Leslie Gage, joined Ernst Ophuls and me in questioning directors
Schiirmann and Brandstatter of Krupp, Hermann Winkhaus,
director o£ Mannesmann, and Heinrich Dinkelbach, director of
United Steel, to find where the financial records and the personal
files o£ the directors of these three firms had been stored. Wc had
been finding that the kind of records the directors chose to move
was often an index of what they considered important either for
their own use or to keep from us.

We found that the Mannesmann records on foreign business had
been taken by the general manager, Wilhelm Zangen, to Hameln,
a story-book town on tlie River Weser where the Pied Piper was
supposed to have drowned all the rats. The Krupps had moved
their securities and records of interests in other companies to
the old **Hansa" mine at Oker, north of Goslar in the Harz
Mountains, and their records of foreign operations to the "Echte"
mine, a few miles south of Goslar. United Steel had moved the
files of the German national steel cartel, renamed the "Walzstahl
Verbandj" to the university town of Gottingen, south of the
Harz* Their financial records were further to the west at Siegen
in Westphalia, and their records on foreign connections were in
the "Siiberwiese" mine in the Vv'^esterwald, a few miles east of
the Rhine, opposite Bonn. It was these records^ and the men who had
gone with them, as well as the records of the Standard Oil-I.G.
Farben deals, that occasioned our circuit of the Harz Mountains in
the last days of May 1945.

We found Wilhelm Zangen, general manager of the Mannes-
mann Rohrenwerke A.G., living comfortably in Hameln, where
he had moved the more important company records from Diissel-
dorf. We had brought along Hermann Winkhaus, the technical
director, who had been sitting on what was left of the Mannesmann
offices in Diisseldorf, to make sure we had no trouble locating the
big boss of the corporation that controlled most of Europe*s pipe
and seamless tube production. The Mannesmann firm controlled
three hundred and twenty-eight mining, fabricating, and sales sub-
sidiaries and normally employed over fifty thousand persons.

Wilhelm Zangen, the autocrat of Mannesmann from 1934 on-

THE HEAVIES 9S

wards, had been a member of the Nazi Party since 1930. He had

joined the firm to represent the Deutsche Bank, Germany's larg-
est commercial and investment bank. The Deutsche Bank began
to move into control of the firm soon after it was founded in 1890
and gradually forced out the two founders, the brothers Max
and Reinhardt Mannesmann. By 1908 the Mannesmann family had
no active part. The Deutsche Bank always kept the firm abreast
of new developments. When United Steel went into the tube busi-
ness v^^ith the help of American loans in 1926, Mannesmann ac-
quired coal and iron mines, blast furnaces and steel mills and turned
out sheet steel, valves and other products in competition with
United Steel. The bank always voted between 50 and 80 per cent
of the stock of the combine at the stockholders* meetings and saw
to it that officers of the bank were elected to the board of directors
and that the representatives of the bank were appointed to super-
visory positions in other companies controlled by Mannesmann in
Germany and abroad.

The first incomplete list of officials of all the Mannesmann com-
panies, which Zangen and his associates made up for us at Hameln,
showed thirty Deutsche Bank officials distributed throughout the
world-wide Mannesmann organization. The oil and pipeline com-
panies that were Mannesmann's biggest customers had representa-
tives on the Mannesmann board to help stabilize the general poli-
cies; but these customer firms were themselves part of the Deutsche
Bank*s domain. For example, the Deutsche Bank controlled the
largest of Germany's domestic oil companies, the Deutsche Erdoel
A.G., known as DEAG, by representing the largest single block of
the outstanding stock at annual meetings. The Deutsche Bank had
the right to name the chairman of the board of DEAG. Policies
of the oil company were agreed upon between the Deutsche Bank
representatives and members of the United Steel group, holding the
second largest block of shares. The deputy chairman of the board
of DEAG w^as a member of the Poensgen family; and the director
general of DEAG from 1939 onward was a former director of
United Steel.

The Deutsche Bank treated the combine like a herd of cows to
be milked at regular intervals and steered into the political pas-

gS ALL HONORABLE MEN

tures where the herd would fatten quickest and produce the most
milk. Mannesmann fattened quickly under the new conditions
created for it by Hitler's Reich. The merging of Deutsche Bank
control and Nazi Party sponsorship worked smoothly when Zangea
was pushed ahead to become general manager. From 1934 on-
ward, under Zangen s management, and with his standing as one
of the earliest backers of the Nazis, the combine went full steam
ahead to ride the crest of the war production drive. It profited
tremendously from the use of slave labor provided by the SS and
acquired new properties in Germany and German-occupied coun-
tries by ''Aryanization** and the other ways open to the Nazi eUte.
Properties in the Saar, Sudetenland, Poland, France, Holland, Hun-
gary and Roumania were taken over and co-ordinated as parts of
the growing combine.

After a few years of Nazi rule, even some of the industrialists
who had been part of the original circle of men who brought Hit-
ler to power began to worry about the way Zangen's Mannesmann
and Thyssen's United Steel were edging out their old cronies from
any role in the tube business. Too late, some of the odier west
German industrialists banded together to try to keep Mannesmann
and United Steel from dividing the entire tube and pipe markets
of Germany, domestic and foreign, between them. At the first sign
of trouble from the others, the steam roller went to work for
Mannesmann and United Steel. In 1938, the Nazi government ap-
pointed Zangen chairman of the top organization for mobilizing
all the German economy, the Reichsgruppe Industrie. The next
year, 1939, the Reichsgruppe Industrie moved onto a larger stage
with a series of joint meetings at Dusseldorf between this German
group and representatives of the Federation of British Industries,
including Sir Percy Mills, to plan the future economic collabora-
tion of Germany and Britain.

Zangen himself was very reluctant to admit to us his part in
Mannesmann's successes. In his rasping voice, he denied bitterly
having had any special niche in the Nazis' hall of fame; but when
he could offer no other explanation in response to Ernst Ophuls's
c^uestioning he sulked or tossed back impertinent remarks. It was
not until we went back to Dusseldorf, picked up Emil Gobbers,

THE HEAVIES 97

the company*s chief accountant, and put him to work with records
moved back from Hameln that we got a graphic description of
Mannesmann's growth under the Third Reich. Rene Manes came
up from Frankfurt with Ed Rains of the Treasury Department to
go into the company's books with Gobbers. They had the Mannes-
mann draftsmen summarize the results on two large maps drawn
in six colors, showing the company's properties by location and
types as of 1936 and 1945. Superimposing the two maps was like
watching a fireworks display. Each multicolored cluster of hold-
ings seemed to burst and release a shower of new bright spots in
all the occupied territories of Europe. To keep this exhibit from
being swallowed by our headquarters for its artistic value, our office
manager. Sergeant Ed Liddiard, requisitioned a color-printing es-
tablishment near Diisseldorf and ran off fifty copies of each map.

We wanted to hear from Zangen about Mannesmann s activities
in the western hemisphere. We knew that the Deutsche Bank had
given Zangen a free hand once he became general manager of
Mannesmann. But Zangen said that he had delegated the manage-
ment of the combiners affairs in our part of the world to Gustav
Kocke, Kocke was not only an early Nazi, but an elder statesmen
with experience dating back to the period of World War I.

Zangen and all the others said they had no idea where Kocke
was. He had retired in 1943 from his position in the management
and retained only a nominal directorship, they said. But, of course,
since Kocke had been the one who maintained Mannesmann's rela-
tions with the western hemisphere, Zangen and the others claimed
to know very little about that phase of the business. We finally
found Kocke almost by accident when we stopped at Bad Sachsa,
high in the Harz Mountains, following a lead to the Standard Oil-
I.G. Far ben documents which Major Tilley had asked us to get.
After we located those papers, the Intelligence officer of Combat
Command ''B," Major Martin Philipsborn, told us that there was
living in a house on top of the mountain an old fellow in whom
we might also be interested. It was Kocke.

On a flagpole in front of Kocke's house was a large Argentine
flag. Everybody in Germany who could display a flag or a sign
of any kind to indicate a non-German identity was doing so. The

98 ALL HONORABLE MEN

country bristled with signs proclaiming Danish or Swiss or Swed-
ish consulates, or branch offices of British and American companies;
but this was the only house I came across in Germany that was
wrapped up in the Argentine flag. The house belonged to one Max
Pahlke, a German who had acquired Argentine citizenship years
before and had saved Mannesmanns Latin American outpost,
Tubos Mannesmann, Ltda., from Argentine government seizure
during World War L He succeeded in doing the same thing in
World War 11.

Kocke was pretty good at dodging questions. To judge by his
own account, he was one of the most ignorant successful business-
men of the age. It seems he stumbled along for years managing
the foreign business of Mannesmann in the western hemisphere
without ever knowing anything about what was going on. He
knew even less than what the files of Mannesmann Export revealed
when we went through some of them at Hameln. According to
him, Zangen did not become 2 Nazi until after he was made head
of the Reichsgruppe Industrie in 1938, and was never active in the
Party. Kocke became a member in 1934, but said he was never active.
Kocke knew Max Pah Ike only as a friend and had never heard of
his espionage work for Germany in South America.

Kocke did not know anything about Gerhard t Wagner either.
Gerhardt Wagner had been manager of Mannesmann's agencies
in the United States. We had to piece together the story of what
Gerhardt Wagner had done for Mannesmann by putting together
various things that Kocke denied knowing. We located a number
of documents on Gerhardt Wagner some weeks later in an office
in Diisseldorf that pretended to be the Swedish consulate general,
but was actually a substitute office of the Mannesmann company.
Hermann Friedrich, a director of Mannesmann, also served as
Swedish consul general in Diisseldorf. He had taken some of the
company's records and placed them under his diplomatic protec-
tion, insisting that we had no right to enter his premises to look
for them. Among other papers in this "consulate** were some in-
teresting reports made out by Kocke's staff in the early part of the
war. Several reports in particular were presented to the German
Economics Ministry in order to get permission to spend dollars

THE H£AVI£S 99

in the United States for Gerhardt Wagner *s salary. According to
these reports, Wagner was performing valuable services for the In-
telligence Service of the German High Command by transmitting
blueprints and other details of machinery orders for war plants in
the United States on which Mannesmann's American agency sub-
mitted bids. Copies of letters from the High Command and blue-
prints and reports from Wagner were attached as appendices in
order to convince the Economics Ministry that it was desirable to
keep this channel open even at the expense of using some of the
precious dollars which the German government wanted to hoard.

From Bad Sachsa we drove to Gottingen to beat the bushes and
start driving quail back toward United Steel headquarters in Dus-
seldorf. The records of United Steel were too near the order of
magnitude of the I.G. Farben files for us to take physical possession.
At Gdctingen, using a list we had found in a desk at the Stahlhof
in Diisseldorf, I picked up Otto Feine, the head bookkeeper of the
German Steel Association, and told him to take me to the Kaiser
Wiihelm Park where, according to the list, Herr Peine was keep-
ing some United Steel records. At an inn in the middle of the park
we found eighty-five huge chests containing the central books of
Germany's biggest steel trusts

United Steel, unlike Mannesmann which was controlled by the
Deutsche Bank alone, was a bankers' paradise. The books of United
Steel in 1944 showed assets equivalent to $1,200,000,000, consider-
ably bigger than the postwar valuation of the Texas Company or
General Electric in the United States, and about on a par with
Socony-Vacuum or Du Pont. The parent concern directly con-
trolled three hundred and sixty-eight other companies and in addi-
tion had two hundred and twenty-one affiliates and agencies inside
and outside Germany. Not one bank, but all the principal German
bankers had a finger in the pudding. The very existence of the
United Steel combine depended, at its formation in 1926, on the
willingness of British and American banks to float bonds with the
American and British public to pay the cost of drawing together
and expanding a combine that had little economic justification.

United Steel was formed in 1926 by a merger of four concerns:
the Rhein-Elbe Union, combined by Hugo Stinnes, Senior, in 1920;

100

ALL HONORABLE MEN

the Thyssen group; the Phoenix group, controlled by Otto Wolff,

the Haniel family, and F, H, Fentener van Vlissingen; and the
Rheinische Stahlwerke, controlled by I.G. Farbenindustrie. This
combine of combines was Germany's second largest industrial com-
plex. But whereas I.G. Farben, the largest, had oniy ten officers and
directors who sat on the boards of other major industrial firms, and
only one director who was from the outside — Edward Mosler of
the Deutsche Bank — United Steels board was made up of a galaxy
of bankers and industrialists, about fifty in all, who rotated through
the positions on the supervisory board and in the management from
the time the corporation was formed in 1926. The all-star cast, in
addition to Flick and Thyssen, included Werner Carp, general
manager of the Haniel family's Good Hope steel and machinery
interests, and director of several of Flicks companies; Hans von
Flotow, director of the Schering chemical combine, and of Gebriider
Stumm G.m.b.H., one of the leading steel firms of the Saar; Carl
Goetz, chairman of the board of the Dresdncr Bank, Germany's
second Largest investment bank, and director of twenty other in-
dustrial and banking firms of the first rank, including the Munich
Reinsurance Company and Merck, Finck & Company, the bank
which managed Hitler's private fortune.

Others were Johannes Jakob Hasslacher, until his death in 1944
a director of I.G. Farben and of the Deutsche Bank; Alfred Honig-
man, director of the Berliner Handelsgesellschaf t ; Willi Huber,
director of the Coal Syndicate; Alfred Hugenberg, industrialist and
publisher, Hitler's first Minister of Economics and Agriculture, and
one of the eariy leaders in the campaign to replace the Weimar
Republic with a ''strong'' governtnent; Johannes Kiehl, director of
the Deutsche Bank and of AKU, the Dutch rayon trust; Karl Kim-
mich, director of Rheinmetall-Borsig, Klockner steel, A.E.G., Flick,
Henkel chemicals, and the Deutsche Bank; Gustav Knepper, di-
rector of Flick and I.G* Farben subsidiaries and counsel of the
RWE utilities network; Paul Marx, chsLirman of the board of
the Commerzbank; Robert Pferdmenges, head of Pferdmenges &
Company, Cologne private bank; Hermann Schmitz, chairman of
the board of LG. Farben; Oskar Sempell, director of Siemens &
Halske; Carl Friedrich von Siemens, until his death in 1942 chair-

THE HEAVIES

lOI

man of Siemens & Halskc and director of Mannesmann; Her-
mann von Siemens, successor to Carl Friedrich and director of the
Deutsche Bank; Heinrich von Stein, partner of von Schroder in
the Bankhaus J*H. Stein; Otto Steinbrinck, director of the German
National Railways and RWE utilities; and, until his death in
1940, Otto Wolff, head of one of Germany's largest steel exporting
firms. Frederik H. Fentener van Vlissingen, president of the Inter-
national Chamber of Commerce from 1933 to 1937 and chairman
of AKU, or Associated Rayon, in Holland was another outstanding
member of United Steels inner circle.

Albert Vogler, predecessor of Ernst Poensgen as cliairman, held
wide directorships in companies including not only all the more
important United Steel subsidiaries, but also such firms as Siemens
& Halske, the RWE electrical utilities holding company, the
DEMAG machinery and mining equipment works, and at least
one of the principal subsidiaries of the Hermann Goring combine.
Altogether, the thirty-five members of the supervisory board and
board of directors who were active at the time the war started held
over one hundred and sixty directorships with other companies.
Fifteen were on the boards of jointly controlled subsidiaries of
LG, Farben; twenty were officers or directors of the Flick combine;
three were on the board of the Deutsche Bank; three with the
Dresdner Bank; eight were with other big banks including the
Commerzbank, Berliner Handelsgesellschaft, Pferdmenges & Com-
pany, and the Bankhaus J.H. Stein. Seven were with the Siemens
& Halske electrical equipment combine; seven were with A.E.G.,
the German General Electric Company; seven were with the
RWE electric utilities; and one or more were on the boards of
Krupp, Mannesmann, Klockner, Haniel, Daimler-Benz, DEMAG,
Waldhof, Schering, Salzdetfiirth, Kali-Chemie, DEAG, and the
Rhenish'Westphalian Coal Syndicate.

In 1931, despite this blue-ribbon board of directors the combine's
debts were greater than the share capita] plus reserves; and the com-
pany was headed for the wringer. Friedrich Flick, who controlled
the largest single block of shares in United Steel, began negotiating
with some French steel producers who wanted to buy the controHing
interest. The French producers proposed to reintegrate the econo-

102

ALL HONORABLE MEN

mies of Alsace-Lorraine and the Ruhr, cutting out the expensive ore

imports from overseas that contributed so heavily to United SteePs
operating losses. But the German press assailed this *'international-
ism** as tantamount to treason; and Flick and the other directors
began negotiating with the Briini ng cabinet.

Chancellor Br lining's government became convinced that if
United Steel went through reorganization, this would be a great
blow to the coal, steel, electrical and other heavy industries of Ger-
many. The government first began buying United Steel shares,
which had been selling on the market at 25 per cent of par. This
raised the open market price to a high of forty-one. Then in May
1932, the government secretly bought the controlling block of
shares from Friedrich Flick at ninety, three and one half times
what the market had been when the government started to *Ves-
cue" the management of United Steel. This transaction not only
restored the personal fortune of Friedrich Flick, who retained his
place on United SteePs board, but it also saved the fortunes of
Fritz Thyssen, Otto Wolff, and others of the blue-ribbon panel that
continued to govern the steel trust after government money flowed
in to prevent "bankruptcy/*

Flick's deal with the Bruning government left Fritz Thyssen the
largest private stockholder in United Steel; and in 1933, Thyssen's
first reward for his years of financial support to the Nazis was a
capital reorganization which gave the government-owned stock
back to United Steel and left Thyssen in control. Later on, Flick
began to challenge Thyssen*s position. He managed to buy inter-
ests first in the steel trust *s coal mining companies. In the end he
succeeded in ousting Thyssen with some help from Goring' s right-
hand man, Gauleiter Terboven, later commissioner for Norway.
On the outbreak of war in 1939, Thyssen, who had aheady lost
his inside track with the Nazis, broke w^ith Hitler and left the
country. By his own account, this was an expression of his disagree-
ment with the war policy.

The star performer who came out as head of United Steel at the
end of the war was Heinrich Dinkelbach, who had spent seven-
teen years as understudy to Ernst Poensgcn. In December 1943,

THE HEAVIES IO3

Poensgen gave up the chairmanship and retired to his country

place in Austria, leaving Dinkelbach to succeed him. In replying
to Poensgen's valedictory message, Dinkelbach wrote:

• . . I have learned a great deal from you. If, among other
things in your letter, you make special mention of my work in the

Reichsgruppe Industrie . . . then I may now tell you that many
a success can be credited to me for the reason that I set you up as a
model for myself. All these labors are directed towards a closer
integration of the economy. Such labors cannot be performed in a
spirit of personal self-seeking. There must be a grand plan. Here
you were a splendid teacher for mc. You never calculated meanly
in Marks and Pfennigs for yourself and your company- You always
saw the grand plan for the whole ... It shall be my aim to con-
tinue my work in this spirit. I hope with you that the Vereinigte
Stahlwerke will maintain and strengthen the position in the
economy which it has acquired under your leadership and Herr
Voglcr's.

On our return from the Harz Mountains we sent for Herr Dinkel-
bach and had him come to our offices in Diisseldorf. We wanted
to discuss with him the grand plan of United Steel, and the ideas
of the common good and the welfare of the community which
he had learned from Dr. Poensgen, as he watched United Steel
strengthen its position in the German economy. Since the cor
poration was always a high-cost producer and would have gone
bankrupt if the government had not provided subsidies to make
up for cost differences, in what sense was United Steel a strong
company? How could it compete on an all-European or world-
wide basi5 if national considerations were cast aside and govern-
ment gifts withdrawn?

We found that our notions of competition were practically unin-
telligible to Herr Dinkelbach. What the Germans arc inclined
to call "competition" has little in common with our conceptions
of competition in price, service, or quality. It is more like political
maneuvering and lobbying. The lobbying and political maneuver-
ing might be within a privately organized trade association or car-
tel, or it might be within government ministries or Nazi Party

104 HONORABLE MEN

formations. A strong position in the economy was simply a posi-
tion in which the directors of the firm found it easy to make arrange-
ments to get what they wanted.

United Steel was the giant in its field, and held its place in
German industry partly by the sheer weight of Its productive power
and partly by the political power of its managers. Some of the other
industrial combines made up in other ways what they lacked in
financial or productive power. Good Hope, or Gutehoffnungshutte,

was one. r * t t ■ i

The Good Hope complex is the family holding of the Haniei
family. These holdings were spread over so many important lines
of industry that the individual Good Hope companies, big as they
were, were usually not the giants in any particular field. For over a
century, coal had been the basis of the Hanlel interests. The col-
heries were located in the Ruhr; but during the French occupa-
tion of 1923, the ownership of most of the family*s property was
transferred to a new holding company in Bavaria, the Gutehoff-
nungshutte Nurnberg A.G., otherwise known as Good Hope Nurn-
berg. The range of the combine's interests, beyond coal, iron and
steel, included copper and cable works, and factories producing
locomotives, rolling stock, automobiles, tankers, ships, diesel en-
gines, steam turbines, farm machinery, mining equipment, com-
pressors, stoves, castings, forgings, pumps, bridges, armaments,
ammunition, and synthetic oil. Extensive engineering, steel con-
struction, and shipping interests spread the company^s activities
far beyond the manufacturing enterprises.

The four main operating subsidiaries of Good Hope Nurnberg
employed about 40,000 and had assets valued at $275,000,000. United
Steel employed 275,000 and had assets valued at $1,200,000,000.
I.G, Farben employed ^00,000 and had 55sets of over $3,000,000,000.
Judged in comparison with their potential competitors, in the usual
sense of the term, the Haniei companies might appear outclassed;
but with the Nazi connections of their management and the Haniei
family members, the Good Hope companies had very little to
worry about*

General manager of all the Haniei properties, from 1904 until his
retirement in 1942 at the age of seventy-four, was Paul Reusch,

THE HEAVIES 10$

lifetime friend of HJalmar Schacht and the first man to whom
Schacht turned for shelter when he v^as released after the Niirn-
berg trials. Reusch turned over the management to his successor,
Hermann Keller mann, who first joined the management of the
Good Hope firm in 191 8. Kellermann was also chairman of the
Rhenish-Westphalian coal syndicate, the RWKS. This was Ger-
many's largest coal association, which financed the early activities
of the Nazis by levying an assessment on every ton produced by
all the collieries in the Ruhr.

The head of the family, Karl Haniei, died in November 1944,
leaving Werner Carp, a member of the family by marriage, as the
active head of the Haniei clan. Following our tour of the Harz
Mountains and the interrogations of the Mannesmann and United
Steel heads, we wanted to talk to the available members of the
Haniei group in the Ruhr, and then to compare notes by talking
to Carp, whom the CIC had detained in the American zone at
Niirnberg. Before we could do this, Carp was suddenly freed from
detention and turned up at his old offices in Oberhausen in the
Ruhr. The first we knew of it was when we found the German
social set in Diisseldorf all in a flutter over the return of Mr. Carp.
One dowager told us he was such a nice man and such a good
friend of Fentener van Vlissingen and Baron von Schroder, as
well as other interesting and important people whom he had so
often brought to their parties in Diisseldorf. On investigation it
appeared that a British major had made a trip down to Bavaria
to arrange for Carp s release into his custody and then had turned
him loose. The British authorities promptly packed the major off
for a two-year term in a British military prison.

We turned our attention to other members of the clan. Dr. Franz
Haniei was by that time too old to be active. Alfred Hankly self-
styled black sheep of the family, claimed to be a vigorous anti-Nazi
and said he had broken with the Haniei family in 1930. He was
living comfortably on his farm outside Diisseldorf, under the pro-
tection of American troops especially assigned to protect him — no
one seemed to know by whose order. He denied any connection
with the Good Hope combine and said his positions were entirely
with shipping and coal mining companies which did not belong to

lOO ALL HONORABLE MEN

the Good Hope complex. What we found out was diat the biggest
shipping company in which Alfred was interested, Franz Haniel et
Cie., Cm.b.H., was owned 42 per cent by Good Hope and 58 per
cent by the coai-mining firm, Rheinpreussen. The Rheinpreussen
firm, in turn, was one of the two mines in which Alfred Haniel
held stock and directorships. The remaining interest in Rhein-
preussen was held by the rest of the Haniel family. The story was
similar with the rest of the companies in which Alfred admitted
having interests. His "break'* with the family had consisted in
retaining no identification with the top family holding company,
but in helping to manage the mining and shipping properties. In
this way, he could have it both ways* He w^as protected on one side
by the good Nazi connections of the rest of the family, so far as
his standing in Germany was concerned; and he was assured his
position as a good anti-Nazi for external relations, because of his
"separation" from the Good Hope combine.

Margaret Bourke-White was photographing the Ruhr for Life
magazine and staying with us at the Villa HugeL She visited Al-
fred HanieFs farm at Hubbeirath, near the Autobahn east of Diis-
seldorf, one afternoon shortly after V-E Day. Among other things,
she took a photograph of Mrs. Haniel and the children standing
in the doorway. That evening Alfred made a special trip all the
way to the Villa Hligel to ask Miss Bourke-White to destroy the
negatives. He said that he had been engaged on extremely confi-
dential matters for the United States government and that these
things would be jeopardized and great diplomatic complications
would result if his present status were publicized. A few days later
we brought him into our offices at Dusseldorf for questioning about
his diplomatic complications and special status. We noted that his
passport showed a dozen trips to Switzerland during the war, the
last one in September 1944. The "status" that worried him, it ap-
peared, was his large comfortable house, and a detachment of
American troops which had been assigned by orders from higher
up to protect the premises. He declined to discuss his extremely
confidential work for our government, however. He said his con-
tacts in Switzerland had been with Mr. Allen W. Dulles, head of
the European mission of the Office of Strategic Services, and a di-
rector of the J. Henry Schroder Banking Corporation.

THE HEAVIES 107

Here, at the end of May 1945, we were getting an answer to
some of our questions about the "Rhineland industrialists/' From
the start w^e had wondered what it was that distinguished this group
in the Ruhr and Rhineland from producers of industrial goods in
other parts of the world, who have sometimes been known to
transact business for generations without finding it necessary to buy
themselves a dictator.

The Briining government had already made a number of con-
cessions to the large combines by decrees and licensing laws that
directly limited the power of "outsiders'* to engage in business.
Industry groups and trade associations gradually got more and
more powers under the Weimar Republic, enabling them to pass
upon the eligibility of newcomers for licenses to engage in busi-
ness. Under the Nazis, when the Four- Year Plan was adopted to
strengthen the drive for self-sufficiency, the groups and associations
got additional powers to allocate and apportion scarce materials or
imported materials among the members.

The demands of the "guns, not butter** formula in the over-all
economy called for corporations to undertake high-cost operations
which, in normal business terms, were not profitable. These opera-
tions had to be **made" profitable by whatever bookkeeping arrange-
ments or subsidies might be necessary. One of the first was to pre-
vent competition inside Germany from "unco-operative" firms
which had not yet seen the advantages of joining in the new eco-
nomic system. A steel company experimenting with low-grade
domestic iron ores, for example, had to be protected against com-
panies using higher-grade ores from other sources.

All of these types of controls, including financial controls, con-
trols over the flow of investment, control over the right to expand
or to enter into new lines of business, and the power to order the
abandonment of small factories and the concentration of production
in the larger ones, had a definite effect on the shape of the national
economy. Even in a short period of five years, from 1933 to 1938,
the so-called capital goods industries increased their activity to
255 per cent of 1933. Certain heavy items like cement, pig iron,
crude steel, finished iron and steel, motor cars, and trucks ad-
vanced to between three and four times their 1933 level of pro-
duction. Chemicals and electrical industries more than doubled.

I08 ALL HONORABLE MEN

The production in light or consumer goods industries on the other
hand went up only to 145 per cent of 1933. Production of vegetable
oils and fats fell to 80 per cent of 1933 production, while food stuffs
and textiles increased only 25 to 30 per cent above 1933.

We were finding that the very existence of the Rhineland group
had depended on their determination to build and maintain a
concentration of heavy industry in a place where, by economic and
technological standards, it did not belong. They had built so much
steel capacity that the rest of German industry could not use it. As
Hitler said, "Germany must export or die/* One definition of
"Rhineland industrialists," we decided, is that they are those who
combine together to carry out a program of heavy industrial ex-
pansion, regardless of economic consequences, and then try to
counteract those consequences by looking for a man on horseback.

Each time we touched something new, we seemed to be opening
up fresh questions faster than our small forces could find answers*
With a growing sense that there were other *'Rhineland indus-
trialists" in Britain and the United States, whose concern over their
German counterparts might be more than the sympathy of one
businessman for another, we were beginning to feel like men work-
ing around a power house with uninsulated pliers, and thin rubber
gloves.

CHAPTER 8

The Cantilevers

MOUNTAIN peaks would not attract much attention if they were
not sitting on top of mountains. In our first drive to find out how
Germany was controlled, we had touched some of the peaks.
Krupp, United Steel, I.G. Farben and some others stood out in such
bold relief that they could hardly be overlooked. But there were
connecting ridges in the shadows of these peaks. The Metallgesell-
schaft A.G. was one.

We had our first glimpse of the files and records of the Metallge-
sellschaft early in April back at Kronberg in the castle of the princes
of Hesse-Nassau. Though it was only a glimpse, it was illuminating.
The "T** force team under Colonel Gordon found the lead to this
hideaway while they were looking into German experiments with
gas masks and decontamination agents to control I.G. Farben's
new war gases,

Kronberg Castle has taken its place in history as the scene of the
theft of the Hessian crown jewels by an American colonel and his
fiancee. I remember Kronberg Castle as a source of puzzles of the
now-yoU'See-it-now-you-don't variety. Coming over from Frankfurt
we could see the castle at Kronberg across the flat plain of the river
Main. Its tower pierced the forest halfway up the side of the Taunus
range. But the nearer we approached the castle the less we could
see of it. It was lost to view as the road wound around among the
trees, until we came upon it suddenly from above. Once inside, we
found the contents as perplexing as the approach. Filing cabinets
and packing cases were stacked about among elegant surroundings.
On the wails were hung, frame to frame, portraits of the members
of the British royal family and paintings of the Hessian princes and

no

ALL HONORABLE MEN

their ancestors- Queen Victoria, whose portraits were in several
of the rooms, had married Prince Albert of Saxe-Coburg-Gotha,
another branch of the Hessian line. Their family tics ran back over
a century.

Members of the family were stockholders in the MetalJgesellschaft.
Though they did not serve on the board of the parent company, some
of them had served as directors of foreign corporations in which
Metallgcsellschaft had interests. In turn they countenanced foreigners
on the board of the parent company, a somewhat unusual procedure
for a German corporation* According to the records, the British
Minister of Production, Sir Oliver Lyttieton, had been one of the
directors of Metallgcsellschaft up to the outbreak of war. Represen-
tatives of Lyttieton companies and representatives of the royal house
of Hesse-Nassau had served as directors of joint Anglo-German
enterprises in Spain, including participation in the Rio Tinto mines.
A great many other bits and fragments of a similar sort turned up
on this first cursory inspection.

It was not until June 2, 1945 that we found an occasion for another
look into the affairs of the Metallgcsellschaft at Frankfurt. This
organization had figured quietly, but very substantially, in practically
every industrial field that fell between the iron and steel industry
and the chemical industry, especially in nonferrous metals and
alloying materials. It controlled 40 per cent of Germany *s copper
smelting and refining; 36 per cent of the lead smelting; dominated
research and alloying of zinc; shared half-and-half with LG. Farben
in the biggest nongovernment-owned aluminum works; shared three
ways with Krupp and LG. Farben in conti-oUing over 60 per cent
of the nickel refining. Krupp, United Steel, and the rolling mills of
Hoesch A.G-, the three largest producers of tin plate in Germany,
had secured most of their tin from Metallgesellschaft, which con-
trolled over half of Germany's tin refining facilities. Also, LG.
Farben and Krupp had joined together in 1934 and entrusted to
Metallgesellschaft the job of developing mineral resources in Spain.
One company controlled by Metallgesellschaft had secured a monop-
oly of all raw materials from mines in Spanish Morocco. Other
subsidiaries controlled the largest deposits of phosphate rock in the
United States. With such accumulated details, we left the Ruhr on

THE CANTILEVERS

III

June 2 and headed for Frankfurt, hoping to find an explanation
and an evaluation of the company's importance.

The main building of the Metallgesellschaft, with its large, high-
ccilinged rooms and wide marble staircase, was still occupied by the
military government of Frankfurt; but a courtyard in the rear
covered a large underground laboratory where a staiT of over one
hundred German research workers could carry out their experiments
with metal alloys, light metals, ores and chemicals. Neither the
laboratory nor the main building had been damaged, but the brick
annex and the other buildings surrounding the courtyard were a
patchwork of makeshifts. The company*s employees crawled and
shufHed about through the wreckage as they put their affairs back
in order. To reach the financial records and the files of the com-
pany's directors, we had to scramble up a ladder to the roof, and
walk on improvised planks laid across the rafters under the ridge-
pole.

The dominant members of the board of directors had included
Dr, Carl Luer, director of the Dresdner Bank and the Deutsche
Bank, and chairman of the board of Adam Opel A.G., the General
Motors Corporation subsidiary in Germany; Carl Bosch, until his
death chairman of the board of LG. Farben; Geheimrat Hermann
Schmitz, who succeeded Carl Bosch; Hermann J. Abs, managing
director of the Deutsche Bank; Karl Rasche, director of the Dresdner
Bank and one of Goring's chief lieutenants; Hans Weltzien of the
Berliner Handelsgesellschaft; Dr. Ludwig Westrick, chairman of
the board of the government-owned United Aluminum Works;
Hermann Schlosser, chairman of the board of Degussa, and a
director of the soap and detergents combine, Flenkel & Cic., of
Diisscldorf.

This meant, in brief, that three industrial firms, LG. Farben,
Henkel, and Degussa, and three of the big Berlin banks, Deutsche
Bank, Dresdner Bank, and Berliner Handelsgesellschaft, as well
as the Nazi ministries of the Four- Year Plan for rearmament, had
supplied the over-all direction of the affairs of the Metallgcsell-
schaft.

The company had performed a planning, shaping and guiding
function in the Nazi economy, reminiscent of Herr Dinkelbach's

112

ALL HONORABLE MEN

noble objective of the "greater integration of the economy." Es-
pecially in the production of nonferrous metals, wherever Metall-
gesellschaft did not itself have the inside track, it had close working
arrangements with the companies that did. For example, we already
knew that in aluminum, the greatest part of German domestic pro-
duction was turned out by the government-owned United Aluminum
Works, Vereinigte Aluminium Werke A.G. The second largest
producer was the Aluminium Werk Bitterfeld, in which Metall-
gesellschaft had a 50 per cent interest. But we found out also that the
company participated on a fifty-fifty basis with United Aluminum
Works in the ownership of the central sales office for aluminum at
Berlin. In this connection we remembered that in 1939 the United
States Bureau of Mines had asked the American consul general at
Frankfurt for statistics on German production of light and non-
ferrous metals. The consul general wrote back that German govern-
ment restrictions prevented transmission of production data in these
fields, but he had given to Metallgesellschaft A.G, the statistics
on American production for the same year, 1939, which the Bureau
of Mines had previously supplied.

Here were eyes and ears concerned with more than the day-to-day
affairs of an industrial machine. Actually two of the directors,
Schmitz of LG. Farben and Rasche of the Dresdncr Bank, were
destined to be convicted as war criminals for their part in planning
and directing the preparations for war and in profiting from Ger-
man conquests. In the war preparations, the Metallgesellschaft had
acted as an agent to stockpile critical materials in which Germany
was deficient, particularly copper, phosphates, pyrites, rubber, tin,
and aluminum alloys* For some time, it was the sole German
purchasing agency for mercury.

This company was one of several German counterfoils, prepared
ahead of time to forestall attempts of enemy nations to cut off
supplies of strategic materials by means of blockades and "pre-
clusive buying." The Metallgesellschaft was particularly suited to
this work, with its world-wide network of engineering and industrial
machinery companies situated in all the important industrial coun-
tries. World trade in the nonferrous field has been controlled more
by loose agreements and patent restrictions than by the production

THE CANTILEVERS II3

and sales quotas and price-fixing arrangements which are character-
istic of formally organized cartels.

The firm served as a meeting ground where many interests were
brought together and worked into a pattern that balanced the in-
terests of the banking and management groups, and of the Nazi
government. Investment banks which supply abstract "manage-
ment/* unfettered by absolute ties to soap, collar buttons, gold
teeth or steel rails, are supposed to furnish a kind of balance to
an industrial economy. The role of the banker-directors, Luer,
Rasche, and Weltzien, we were told, was to keep the activities of
the firm directed toward the greater good of all firms in which the
banks had a finger, rather than toward the particular good of
Metallgesellschaft alone. Karl Rasche, in addition, could represent
the needs of the Nazi ministries.

The principal stockholders in Metallgesellschaft were, in turn,
companies performing a similar function in other parts of the
economic system. The three dominant stockholders were Henkel,
Degussa, and LG. Farben. Degussa, the precious metals combine,
was a favorite child of the Dresdncr Bank. Its chief stockholders
were Henkel and LG. Farben. The outstanding member of the
supervisory hoard was Carl Goctz, chairman of the board of the
Dresdner Bank.

While Degussa's books showed assets worth only a little over

fifty million dollars, it was second only to I.G. Farben in the range,
variety and importance of its products in chemicals, metals, and
related fields.

Degussa had a growth unKke that of the massive giants of Ger-
man heavy and synthetic industries. Instead of htcoming big in
some one product, it grew more like a coral reef. Starting with
precious metals processing, the company began to get control of the
sources for raw materials and reagents that it needed. These, in turn,
yielded by-products that could be used in other kinds of industry.
But to make these by-products useful, they had to be combined with
certain other materials. So Degussa would acquire the sources of
these materials which, in turn, produced useful by-products, and
so on, ad infinitum.

Before this company had been in business many years, there was

114 HONORABLE MEN

hardly an industry in Germany that was not completely dependent
on Degussa for some essential product in which Degussa held a
monopoly or a near monopoly. Beginning with activated charcoal
and metals refining, Degussa had ended up in such fields as gas
masks and mine-safety equipment. Beginning with cyanides, it
had branched off into hardening salts, grinding materials, and
tempering ovens for the machine tool industry. Degussa had a
practical monopoly of carbon black for rubber tires, refractory
materials and temperature-measuring devices for the metals indus-
tries; platinum spinnerets and capillary tubes, as well as acetate and
cellulose solvents, for the synthetic textile industry; rare earths for
manufacture of optical glass; ceramic dyes and glazes for the ceramic
industries; insecticides for agricultural use, and so on around the
clock.

Degussa controlled so many patents in so many fields, often
covering some intermediate product or process that other industries
could not get along without, that it acquired an important status
in all the industry-wide agreements, or cartels, in all its fields of
interest. Most of these arrangements were not confined to Germany
alone.

Cyanides furnished us with one example. To the average person,
cyanides are familiar only as a principal ingredient in mystery
stories. But industrially they are used as hardening agents and in
a variety of other uses important enough to be the subject of an
international arrangement known as the International Sodium
Cyanide Cartel. This organization has fixed production quotas for
its members on an international basis. Degussa was the leader of the
continental European group. By quietly building up stockpiles of
cyanides and then threatening the Anglo-American group with
dumping, Degussa several times increased its quota of world exports
and elbowed itself into a position to settle matters outside of Ger-
many. One by one, companies outside the arrangement were either
taken into the agreement, or payments were made to them for not
manufacturing cyanides. Failing that, agreements were made that
certain quantities would be bought from them at a price far above
production costs, if they agreed to limit production, keep prices at a
certain level, or limit their activities to a specified market. So far

THE CANTILEVERS II5

as the United States was concerned, the leading producer, Du Pont,
was not legally able to join the cartel. It was agreed in 1932 that no
correspondence on cartel matters would be sent to Du Pont in the
United States, and that the British chemical trust, Imperial Chemi-
cal Industries, Ltd., would act as Du Font's agent in these matters.

From 1931 to 1939, the Ocean Chemical Company of Ramsbottom,
England, was paid about twenty-five thousand dollars a year for not
producing cyanide* In 1931, Degussa began paying a Professor
Hene, of Berlin, about ten thousand dollars a year for not ex-
ploiting his new process for the manufacture of cyanides. When
Hene later moved to England and interested the Rand Mines in
his process, Imperial Chemical Industries agreed to make a down
payment of over fifty thousand dollars and annual payments of six
thousand dollars to Rand Mines and Hene to refrain from manu-
facturing cyanides in England.

One could go on through the list of other Degussa products and
find similar arrangements worked out internationally. In 1934, for
example, Du Pont and Degussa made a series of patent-exchange
agreements establishing exclusive sales territories for the two com-
panies for alkaline metals, cyanides, sodium peroxide, formaldehyde,
ceramic dyes and other products. In 19^5, another range of agree-
ments was made with the Commercial Solvents Corporation of
New York* The Du Pont-Dcgussa agreements were followed closely
by similar arrangements between Degussa and Imperial Chemical
in England.

It was one of the anomalies of the occupation of Germany that
when the production program actually called for processing some
gold into gold leaf, to be used in decorating Bavarian chinaware for
export, Degussa had no gold. Our "gold-rush*' vaults in the Reichs-
bank building at Frankfurt contained several hundred million
dollars in looted gold not two blocks away from Degussa's main
oflSce, but Germany's great gold and silver combine had none of
its own. Late in 1946, a first shipment of some thirty thousand
dollars* worth of gold bars was flown in from the United States,
under an arrangement financed by the Export-Import Bank, with
money furnished by American taxpayers.

On June 7, 1945, we completed our first look into the affairs of the

Il6 ALL HONOKABLE MEN

Metallgesellschaft and Degussa, and headed back to the Ruhr. We
had to look for the beginning of the chain of corporations that had
served as go-betweens for the metal and chemical industries. The
first link in this chain was Hcnkel of Dusseldorf, Germany's largest
producer of detergents, glycerine and industrial fats. It was another
satellite of the Dresdner Bank. Dr. Hermann Richter of the Dres-
dner Bank had been chairman of the board of managers since 1942.

Hcnkel had at least thirty-five important foreign subsidiaries in
Austria, Czechoslovakia, France, Holland, England, Denmark,
Poland, Italy, Roumania, Sweden, Switzerland, Yugoslavia and the
United States. By agreements of long standing between Henkel and
the British and Dutch international interests of Lever Brothers and
Unilever Ltd., the British group had the right to use the Henkel
trade-marks and trade names in the British Empire and in France
and the French colonies.

Hcnkel and two of its subsidiaries, Deutsche Hydrierwerke A.G.
and Bohme Fettchemic, G.m.b.H,, formed a working combination
in 1932 to set up a dummy holding comp^tny in the LTnited States
with a working capital of three miUion dollars* The Henkel group
organized this company, the American Hyalsol Corporation, ostensi-
bly as a patent-holding company to own its American patents on
the new cleansing agents, which are the basis of soaplcss lathers
and latherless soaps. Licenses under these patents were issued to
American companies working in these new fields. Companies such
as Procter & Gamble, Du Pont, and the Richards Chemical Com-
pany, for example, took licenses under the Henkel patents. Just
in case of future trouble, the German company arranged to have
an American appear as the sole owner of American HyalsoL
Actually, when the war did come, this little bit of proteaion did
not work quite so well as they had hoped. The AHcn Property
Custodian in 1943 seized American Hyalsol as a German-controlled
concern, regardless of appearances. But the Custodian's oiBce, too,
was only partially successful. After the war, we found that what
the Custodian had seized was only the lizard's tail.

This came to light when we got hold of the Henkel & Cie. records
at Diisseldorf. We found that even after Pearl Harbor, a Svnss
company had been making regular payments to the German com-

THE CANTILEVERS II7

pany on behalf of American Hyalsol under an arrangement worked

out before the war. The Henkel management had anticipated the
outbreak of war in 1939 and figured that it would last about six
years, or until 1945. They had made provision to have patent royalties
paid in advance by the American licensees to the Swiss company
for that period. We traced one such transaction in detail.

The American company had first set up on its books a fictitious
debt of two million dollars supposed to be due to the Swiss company.
Then an American, supposed to be the owner of American Hyalsol,
borrowed three hundred thousand dollars from Procter & Gamble
as an advance against future payments of royalties which would be-
come due over die next six years. The purpose of the loan was to
enable Hyalsol to make a payment against the debt to the Swiss
company. This three hundred thousand dollars was then trans-
mitted to Switzerland, ostensibly in part payment on the fictitious
debt of two million dollars. Throughout the war, therefore, the Swiss
company could make the regular payments due to Henkel of Diissel-
dorf while the debt of American Hyalsol Company to Procter &
Gamble was extinguished bk by bit as royalty payments became due
from Procter & Gamble to American Hyalsol

An arrangement of the same kind had evidently been made with
other American licensees. It worked just as well as actual transfer
of new funds across the battle lines. But unless, in keeping up the
deception, the American cloaks falsified their tax liabilities, there
was nothing illegal about the transaction, and so far as the record
showed, there was no need for the American licensees to know
the real purpose of the advances.

Going over the affairs of the three combines, Henkel, Degussa, and
Metallgesellschaft, made it clear that the Dresdner Bank had used
them to keep the bank's band in the affairs of a great many German
industries, and as nerve centers for operations abroad. In the early
days of Hitler, financial experts were constantly predicting German
bankruptcy. Somehow the large bankers had, as a group, pulled
together an economy of heavy and synthetic industries, gaining "self-
sufficiency'* for Germany at great expense, yet without the predicted
financial catastrophe. We decided to sec how the bankers had kept
them in business.

CHAPTER 9

Banks of the Rhine

THE head offices of the central banks were not yet available for
investigation* Most of them were in the Soviet sector of Berlin, and
it would take four-power agreement to open them up. But the pre-
liminary inspection at Frankfurt was enough to indicate a pattern.
We found that the things Germans have been accustomed to call
banks fall into about three general classes which arc easy enough to
tell apart.

First there was the Rcichsbank. Like the Bank of England, it
was a curious mixture of government and private affairs, taking
a global hand in the national finances, carrying out large-scale
maneuvers like foreign exchange control, manipulating exchange
rates and tariffs, and financing government ministries, while re-
maining in other respects a privately run bank. Its many branches
even provided banking services for depositors.

Until January 1939, Dr. Hjalmar Schacht headed the Reichsbank.
At that time he and most of the other directors lost their jobs in an
argument with Hitler and his ministers over financing the war
program* According to Schacht, they could not go much further
with the *'guns, not butter" program, concentrating everything on
the heavy industries, without going bankrupt. With the war ready to
start, Hitler differed on this detail and replaced Schacht with Wal-
ther Funk, who immediately eliminated most of Schacht's top staff
except Emil Piihl, the acting deputy. Puhl actually ran the Rcichs-
bank from then on, because Funk knew next to nothing about
banking.

Dr. Schacht had good reason to worry about the Nazi economy as
a banking proposition; but, like most of the "business'* we had been

BANKS OP THE RHINE II9

exaraining, the operating machine in Germany often bore little re-
semblance to the principles of *'sound business management*' that a
person might learn in the Harvard Business School. When Dr.
Schacht early in the Nazi regime took on the job of protecting the
growing war economy from foreign competition, he did very little
that had not already been done privately by the cartels and combines.
The innovations that Schacht developed consisted largely of certain
over-all controls of foreign exchange, so devised that German money
could have different values for different purposes at the same time.
In this way, the price of steel inside Germany could be different
from the prices at which it might be sold in various foreign markets.
Under the Schacht plan, none of these price ratios need have any
relation to the domestic or foreign prices of dyestufls or leather
goods. With controls in force over exchange of marks into foreign
currencies and vice versa, people expelled from Germany or leaving
voluntarily could be stripped of most of their holdings by a very
low rate of exchange into foreign money. Germans living abroad
could be attracted back to Germany through the promise of ex-
tremely favorable conversion rates. Some people have said there
were about forty-five distinct types of German marks used for all
these purposes. Others have said that the number of types depended
on how you counted.

Dr. Schacht simply rang all the changes in using finance as a way
to determine what kinds of things arc to be produced or sold, and
by whom. In other countries, certain things were or were not con-
sidered "sound." An unwritten code determined the persons or
groups who were allowed to manipulate financial conditions, or
change the value of money. In the United States, for example, tlie
Constitution gives to Congress the power to "coin money and regu-
late the value thereof But orthodox financial doctrines make it
practically an axiom that the power to regulate the value of money
consists in saying how much gold is to equal the value of one dollar.
Any attempt to change this ratio of gold to dollars, if it is not con-
sidered immoral, is at lease a highly charged political act. On the
other hand, expansion or contraction of the total amount of money
effectively in circulation, which in turn has a great deal to do with
how much of the stuff of life a dollar will buy, is considered the

120

ALL HONORABLE MEN

proper province of private enterprise. It is as if the Constitution
had said: **Congress shall have power to coin money and determine
how much gold equals a dollar, but the value thereof shall be de-
termined by private enterprise/'

Dr. Schacht and the Nazis changed these axioms so far as Germany
was concerned. They lumped together everything that had to do
with regulating the value of money and recognized no limitation
on the powers of the government to do whatever it considered
necessary in managing the currency. In doing this they had the
backing o£ the big financiers and industrialists. The carrot they
oflered to selected combines and enterprises took the form of tax
concessions, government subsidies, legal restrictions on the right of
stockholders to interfere with "management," and a variety of
administrative concessions that could be granted by ofBcials to any-
one who had the proper inside track.

But the Nazi economic scheme went beyond Dr. Schacht's manip-
ulation of the financial rules. For these purposes they needed the
services of institutions like banks; but they could not be too fussy
about all the rules of "sound investment.'* What the Nazis needed
was the algebra of the bankers, to translate practically anything into
business terms; but they wanted no restriction on whatever was to
be translated. For example, our group of Treasury men, looking into
the affairs of the Dresdncr Bank, found that in 1939, Oswald Pohl,
in charge of concentration camps for the SS, had wanted a large
loan for his "prison industries" firm, the Deutsche Erd und Stein-
werke G.m.b.H.j or DEST. The Dresdncr Bank had granted one
loan of five million Reichsmarks to the DEST, which supplied
cheap, expendable slave labor for unpopular jobs in heavy industry,
with special attention to the needs of firms whose directors con-
tributed to the Himmler fund. But Pohl needed more money. For
this he consulted Emil Puhl of the Reichsbank, who also headed the
Reichsbank subsidiary, the Golddiskontbank. Puhl found the ob-
jective a worthy one; but since the charters of both banks would not
legally allow this type of loan, he arranged to have eight million
Reichsmarks advanced by the Reich Economic Ministry out of funds
deposited in the Golddiskontbank.

The gold-rush teams, tracing the Reichsbank gold, had found still

BANKS OF THE RHINE

121

further details of these "banking** services when they checked into

the mixture of SS loot and Reichsbank gold, not only at the Merkers
mine but in vaults of the Reichsbank branches. Commander Joel
Fisher had picked up Emil Puhl's assistant, a man named Thorns,
and had taken him along to identify the hiding places. Thorns ad-
mitted that he had taken care of the details of an arrangement
worked out between Oswald Pohl and Emil Puhl, whereby the
Reichsbank would receive and dispose of SS loot and account to the
SS for the proceeds. That explained the carefully inventoried bags
of gold teeth, jewelry, and other valuables shipped from Auschwitz
and other murder camps and stored with the Reichsbank. Further-
more, Emil Puhls double position as active head of the Reichsbank
and as a German member of the private international bank, the
Bank for International Settlements;, at Basle^ Switzerland, made him
an ideal "fence'* to dispose of some of the gold after it had been
melted down into the shape of monetary gold bars.

When the German armies spread over the rest of Europe, the
economic arm of the combines was not far behind. As one director
of the Dresdner Bank wrote in 1943, he had heard from a client a
**very flattering*' ditty: "Who marches behind the leading tank?
It is Dr. Rasche of the Dresdner Bank." What a few basic controls
of finance and the conditions of doing business could do to the
balance in Germany between heavy and light industry, they could
also do to the economic pattern of a much larger geographic area.
Behind the "leading tank" the same controls moved in to turn non-
German territories into suppliers of raw materials and semifinished
products, and into decentralized agricultural areas which would
feed the economic machine centered around German heavy in-
dustry.

The job of co-ordinating many of these economic face-lifting
operations fell to the men of the industrial combines, acting in their
capacity as directors of the largest central banks and private banks.
The central banks carried the main load, and the private banking
partnerships filled in the cracks. The six centralized commercial
and investment banks can be considered most easily by pairs. Two
^ere creatures of the government, each of them combining in-
dustrial and banking activities under one management. The Labor

X22

ALL HONORABLE MEN

Front Bank, the Bank dcr Dcutschen Arbeit, was set up by the

Nazis. The other, the Reichs-Kredit-Gesellschaft, was a leftover
from World War L Two were Beriin banks of moderate size, the
Berliner Handelsgesellschaft and the Commerz und Privat Bank,
better known as the Commerzbank. The two giants of the Big Six,
with head offices at Berhn and branches all over Germany, were
the Dresdner Bank and the Deutsche Bank. Besides these, and
working under the umbrella provided by the Big Six, were the
scattering of small but sometimes very important private banking
partnerships, like the Bankhaus J.H. Stein, and Pferdmcngcs &
Company of Cologne. Others were Berlin firms such as Merck,
Finck & Company, Delbriick, Schickler & Company, Hardy &
Company, or the Deutsche Landerbank. Delbriick, Schickler &
Company was a subsidiary of Metallgesellschaft. The Deutsche
Landerbank was a subsidiary of LG. Farben. Other private banks,
carrying on largely a brokerage and investment biislness, could be
found in other large cities like Hamburg, Frankfurt, and Munich,
most of them attached to one or more of the big family trusts or
combines.

The Labor Front Bank was an eye opener for any members of
our party who might have entertained the illusion that Nazi rule
was fastened on Germany by ideological mumbo jumbo and mass
psychology. Postwar Germans of all ranks denied that Nazism
had attracted them in any way. But the Labor Front and its bank
had provided jobs and the necessities of life for people who had
been able to get neither from the lopsided heavy-industry economy
of the 1920's. Under the Nazis, all members of the Labor Front,
which included practically all wage earners in Germany, had to
make regular deposits in the Labor Front Bank* With these funds
the Labor Front became a pseudo-commercial concern of tre-
mendous size operating all manner of direct consumer-goods enter-
prises, like bakeries, food-processing plants, hotels, chain stores, and
other establishments. These were set up to provide the Labor Front
membership with basic necessities at prices they could pay.

This was not a charitable undertaking on the part of the Nazis.
They were being careful not to kill the goose .that laid their golden
eggs- "Unrest" like the Krupp strike in 1932 had come from the

BANKS OF THE KHINE I23

shortage and high prices of consumer goods, which in turn had been
the result of overconcentration on the development of heavy in-
dustries. Once the Nazis were in, **privatc enterprise" in the form
of the heavy-industry combines, out of whose profits came a flood
of Party funds, was left in control of German industry subject only
to the channeling activities of Nazi suborganizations Uke the Reichs-
gruppe Industrie. This meant that the build-up of the heavy in-
dustries was to continue.

It became the job of the Labor Front to correct the lack of balance
as far as possible, without hampering the expansion of heavy in-
dustry. As a long-term proposition, this would have been absurd.
How could most of the labor force be employed constantly in the
heavy industries, and yet enough food and consumer goods be
secured to satisfy the whole population, including heavy-industry
workers? Germany was like a man who spends all his income
making payments on 31 house, a car, a television set, and a hobby
shop, and has nothing left to buy food. For a time, while the Four-
Year Plan got Germany on a war footing, the Labor Front*s enter-
prises helped to stop the grumbling. Then, when the country was
ready for war, as fast as Nazi armies occupied other countries of
Europe, a well-organized consumer-goods collection scheme went
into operation and stocked the Reich with an unprecedented supply
of every type of consumer goods from apples to zwieback. We saw
the results in cities like Arnhem, in the Netherlands. Residents told
us that convoys of German trucks would go through the city, up one
block, down the other, one truck collecting only sheets, one only
pillow cases, one only stockings, one just the fur coats. So this
organized looting would go on through city after city and country
after country. The Wehrmacht did more than just sack and loot
individually, as armies have always done. They were dipping system-
atically into a large reservoir of consumer goods as the only way to
supply needs of the German population while they continued the
production of heavy goods for war.

The other government-owned central bank, the Reichs-Kredit-
Gesellschaft, or RKG, was a war-preparations organization of a
different kind. It had been geared up long before the Nazis came
in. The RKG was owned directly by the government industrial

124 HONORABLE MEN

combine, VIAG, or United Industrial Enterprises. This combine had

been set up in 1923 by the German Finance Ministry to operate in-
dustrial plants that had been built with government funds during
World War 1. Under the Weimar Republic, VIAG was used by the
German High Command to try out plans for industrial war mobili-
zation^ VIAG's financial right arm was the bank, which extended
large loans so that industrial organizations normally operating in
other fields like machinery or locomotive-building could take on
"educational" military orders for aircraft, tanks, and guns. For ex-
ample, the largest European locomotive builders, Hcnschel & Sohn
of Kassel, took on the job of building up the Henschel aircraft works,
Henschel Flugmotorenbau G.m.b.H., with the help of a loan from
the RKG. Both the Henschel firm and RKG supplied managing
directors and members of the supervisory board of the aircraft sub-
sidiary. The RKG had assets in its own right of not much more
than two hundred million dollars, but in big deals it acted as a
conduit for government funds. The RKG helped to finance barter
and trade agreements with countries like Spain and Portugal
through its barter firm, the Rowak Handelsgesellschaft. This barter
agency funneled arms and equipment to Franco during the Spanish
war. The RKG also made political loans to Germany^s allies and
satellites. After German armies occupied eastern Europe, such
loans were used to develop natural resources and to integrate
the economies of the satellite states into the economy of Nazi
Germany. One example was the Kontinentale Oel A.G., a holding
company headed by Wilhelm Keppler, established to create a Ger-
man oil monopoly in eastern and southeastern Europe, including
Roumania*

The other four big commercial banks were privately owned. Their

role was to correlate the activities of the big combines which were
their clients, and on whose boards the banks* officers served. The
Berliner Handelsgesellschaft and the Commerzbank were the fourth
and third largest, respectively. The BHG had assets of about two
hundred and forty million dollars, in the form of directly owned
investments and business enterprises. The BHG had no branches.
The Commerzbank had branches here and there throughout Ger-
many; but neither the BHG nor the Commerzbank was important

BANKS OF THE RHINE

125

as a spreading chestnut tree. They were the "me, too" outfits of

the big league.

The BHG's management group included Hans Burckmeycr of
Berlin, chairman of the board of Schering A.G., the chemical firm,
and Duco A.G., recognizable by its name, but supposedly 51 per
cent controlled by Schering. Others were Herbert L. W. Goring,
nephew of Hermann; Hans Weltzien of Feldmiihle Papier,
Schering, Metallgesellschaft and the textile firm, Christian Dierig;
and Rudolf Eisler of Degussa. The BHG, seconded by repre-
sentatives of Count von Ballestrem's Silesian coal and steel interests,
took the major role in running Schering A.G., the up-and-coming
chemical comhine that always has hoped to step into the shoes
of LG. Farben. Along with the Commerzbank, BHG had the
major voice in the Feldmuhle paper works, Europc*s largest pro-
ducer of paper and newsprint. The power of these two banks to
grant or withhold supplies of newsprint was not inconsiderable.

The roster of the Commerzbank included men like Friedrich
Reinhardt, who until his death was president of the BerHn Chamber
of Commerce and a director of Schering chemicals and A.E.G.
electric. Others were Paul Marx of Berlin, director in the Feldmuhle
works, United Steel, Klockner, and FUck's Mitteldeutsche Stahl-
werke; and Dr, Theo Goldschmidt of Essen, head of the heavy
chemicals and coal tar by-products firm, Th. Goldschmidt A.G., also
part owner of Feldmiihle, and director of the potash firm, Kali-
Chcmie A.G.

The Commerzbank, while much larger in total assets than BHG,
contented itself with supporting roles in important combines like
Robert Bosch, Schering, A.E.G., United Steel, Feldmuhle paper, and
Salzdetfurth A.G., the potash firm which in turn controlled Mans-
feld A.G., the copper trust. Perhaps the best illustration of the sup-
porting role played by the Commerzbank was its co-operation with
the other big banks in controlling Germany's fifth largest coal
combine, Hoesch A.G. of Dortmund in the Ruhr. This family hold-
ing of the Hoesch family and their relatives, the Springorums, was
a focal point for agreements and understandings that shaped the
rest of the business of the Ruhr. Fritz Springorum, director general
of Hoesch A.G. from 1933 to 1938, was for many years chairman of

126 ALL HONORABLE MEN

the so-called long-name association, the Association for Safeguarding
the Common Interests of the Industrialists of the Rhineland and
Westphalia, an organization with a long and cloudy history as an
employers' union.

The other two central banks were the big guns. It would have
been hard for us to overlook them. On the main business thorough-
fare of every German town arc the torn and twisted signs that spell
out '^Deutsche Bank" and *'Dresdner Bank." In Germany alone,
there were four hundred ninety branches of the Deutsche Bank
and three hundred sixty-eight branches of the Dresdner Bank, be-
sides their central offices at Berlin, The Deutsche Bank owned
directly assets valued at three billion dollars; but this is secondary
as an indicator of the spread of the Deutsche Bank over German
finance and industry. More important than the amount of money
were the offices and directorships held by the bank's officers and
directors in other German enterprises, and the representation of
stockholders at stockholders* meetings that came from having large
blocks of shares on deposit from individual investors all over
Germany. Some fifty-four officers and directors of the Deutsche
Bank, during the war years, held a total of seven hundred seven
positions as officers and directors of other corporations. Two hun-
dred eighty-one of these were chairmanships or vice-chairmanships
of boards of directors. Slightly smaller figures would apply equally
well to the Dresdner Bank with its two and a quarter billion dollars
of directly controlled assets.

The strength of the Deutsche and Dresdner Banks came from
their union of deposit banking with management and investment
functions, a practice not allowed in the United States. In Germany,
with securities in all corporations payable to "bearer " most security
holders deposited their shares with banks for safekeeping; and the
banks voted the shares entrusted to them. We have no strict Ameri-
can counterparts of the German banks, whose capital came not from
deposits of money by the partners but from deposits of stock from
the whole country.

The banking operations of the Deutsche Bank might be compared
with those of the Bank of America in the United States, with its far-
flung branches and its hand in the finances of giant corporations.

BANKS OF THE RHINE I27

As an investment house, the Deutsche Bank might be compared
with }. P. Morgan & Company, with its heavy financial stake in
important basic industries. There was one notable difference, how-
ever. The Deutsche Bank^s connection with well-known enterprises
was a matter of constant notice and attention in Germany, whereas
the Morgan house in the United States has for years followed a
policy of public relations in reverse. At the present time in the
United States there is very little Hnking of the Morgan name with
the affairs of the much better publicized industrial firms in the
Morgan portfolio. United States Steel, General Electric, American
Telephone and Telegraph, International Telephone and Telegraph,
Commonwealth and Southern, and many others, are familiar house-
hold words to many people who think of the House of Morgan as
a feature of a bygone day. A gentlemanly old pirate, J. Pierpont
Morgan, once wrestled with the Harrimans and other giants of
railroading and industry, but that was half a century and more ago.
Not so the Deutsche Bank in Germany. Its name was everywhere
and only to a slightly lesser extent were the names of its leading
lights: Hermann J. Abs, Johannes Kiehl, Wolfgang Reuter, Wilhelm
Zangen, Hermann Schmitz, Jakob Hasslacher, Oswald Roesler,
Karl Ernst Sippell, Hermann von Siemens, Philip Reemtsma. The
companies they made their special province were equally well
known: I.G. Farbenindustrie, Siemens & Halske, VGF rayon,
Reemtsma cigarettes, Mannesmann steel tube, the two motor com-
panies, Bayrische Motoren Werke and Daimler-Benz, the DEMAG
machinery combine, the world's largest building contracting firm,
Philip Holzmann A.G.

The Dresdner Bank as a banking house was comparable to the
Chase National Bank or the National City Bank in the United
States in the way its officers stayed close to governmental circles
and kept an eye on international tics. As an investment house, the
Dresdner Bank might be compared to the American firm of Dillon,
Read & Company for its specialization in business management with
the involvement of very little capital. To some extent there may
be a question whether it was Dresdner Bank which supplied
management to certain companies or whether it was the manage-
ment of certain companies which supplied bankers to the Dresdner

128

ALL HONORABLE MEN

Bank. The only director of LG. Farben who came in from outside

the firm, for instancCy was Edward Moslcr of the Detitsche Bank.
Oil the other hand Carl Pfeiffer, an inside man of LG. Farben,
became a director of the Dresdner Bank. Similar industrial ex-
perience could be claimed by the chairman, Carl Goetz, and other
directors like Friedrich Flick, Carl Lindemann, Otto Burckhardt,
Wilhelm Avieny, Karl Rasche, Emil Meyer, and Helmuth Roehncrt.

Looking back from the Deutsche and Dresdner Banks through
their ofBcers and directors to the industries they had managed and
directed, one could see the skeleton of a whole economic system.
Aside from the Reichsbank and the three government corporations,
the rest of the Nazi hierarchies of trade associations, chambers of in-
dustry and commerce, and industry groups were all simply names for
special kinds of organizing activities in charge of different members
of the same set. The government corporations included VIAG, the
hangover from World War I; the Reichswerk A.G. Hermann
Goring, medium for armament supplies and reservoir for plunder
in World War II; and finally the Rustungskontor, billion-dollar
supply corporation for collecting, stockpiling and allocating scarce
and strategic materials. To the extent that these corporations and
the Reichsbank were not run by men from the regular banks and
industrial combines, they were coordinated by other means.

This was not simply banker-control of industry. It was a centrally
controlled and planned industrial economy. Even as early as the
1920 's, four fifths of German industry was grouped into combines.
Under the Nazis the number of corporations, and likewise the
number of different individuals planning and directing the whole
economy, was simply trimmed down to a much lower figure than
before.

Between 1933 and 1942, the number of small corporations capital-
ized at under 500,000 reichsmarks fell from 5453 to 1843 and their
combined capitalization fell from 815,000,000 to 368,000,000 reichs-
marks. During the same time, the medium-sized corporations with
capital not over 5,000,000 reichsmarks stayed at a combined total
reichsmarks capitalization of 4,500,000,000 though the number of
corporations fell slightly, from 3016 in 1933 to 2684 in 1942.

The number of large corporations capitalized at over 5,ooo/x)0

BANKS OF THE RHINE 129

reichsmarks rose from 679 in 1933 to 877 in 1942, while the total

number of all corporations was falUng from 9148 to 5404. At the
same time, the total capitalization of the large corporations rose
from 15,200,000,000 in 1933 to 24,200,000,000 in 1942,

Even these figures on total numbers of corporations tell only
part of the story because actual control, co-ordination of policies,
and "rationalization*^ within industries and among related industries,
were all the concern of a clique that included not more than a
hundred individuals. While these men were most easily identified
by naming the banks they helped to manage, it was their outstand-
ing character as a homogeneous group that set them apart. A
member of the board of the Deutsche Bank, for example, never
joined the board of directors or the management of an industrial
concern on a personal whim, as if he were joining a club. The bank
directors had to give unanimous consent. Once he took the job,
the director was personally responsible for seeing that the policies
of the company meshed with the general plans of the bank.

This co-ordination of industrial economics through strategic
placing of directors was bolstered further by voting control. The
Deutsche and Dresdner Banks, having branches throughout Ger-
many, drew the necessary large blocks of important stocks together
at Berlin through redeposits from the various branches. As invest-
ment bankers, the big banks also had another important way of
shaping the relations of different corporations to one another to
suit their purposes. New issues of securities originated on behalf
of one client corporation would be placed in dif^xrent proportions
With other client concerns instead of being offered to the general
public. In this way, a series of organizations were built over a period
of years to serve the actual purpose of planning production, dis-
tribution and finance in the heavy industries that formed the back-
bone of the German economy. The way the alliances of banks and
industries had been organized explains why these types of combines
and associations turned up most often in the fields of producer
goods or capital equipment, and seldom or never in the field of
consumer goods and light industries. The power in I.G. Farben
and the steel and electrical equipment trusts had to make itself felt
at points where control of some one thing was enough to keep a great

130 ALL HONORABLE MEN

many other things under control It was once more the famUiar
principle of the bottleneck or tollgatc*

The men who ran the heavy industrial combines like I.G. Farben,
Mannesmann, United Steel, and Siemens & Halskc may have had
individual ambitions that sometimes clashed; but far more power-
ful was the internal discipline that held them together. They kept
their ties to one another without the heel-clicking, cuff-shooting,
colored shirts and arm bands that the Nazis bad to use to organize
the rest of the population.

CHAPTER 10

The New Hague Convention

SYNTHETIC textiles held a high place in German autarchy. Ger-
man production of substitutes for cotton, wool and silk fibers be-
came a practical monopoly of four large combines: VGF, the
largest rayon concern in Germany; I.G» Farben, the second largest
producer, owning six artificial fiber plants; the Phrix Works, largest
producer of cellulose wool, organized in 1935 as part of the synthetic
materials program; and the Kunstseide Ring, a group of twelve
cellulose fiber and by-products companies, also established in 1935
for the same purpose. The Phrix combine and the Kehrl-controlled
Ring, as part of the Four- Year Plan, developed a great many proces-
ses for using waste products like straw and sawdust to make edible
proteins, yeast, wood sugar and synthetic cattle fodder to make
up for critical wartime shortages.

Hans Kehrl, in 1941, became chairman o£ the board of the Phrix
Works and brought in Baron von Schroder, by that time also an
SS Brigade leader, to maintain ties with the Ring, with VGF, and
with the Dutch rayon combine, AKU. The latter connection was
made easy, not only because of the corporate connections between
VGF and AKU, but by von Schroder's long and close association
with the Dutch head of AKU, Fentener van Vlissingen.

Now we wanted to know more about United Rayon, VGF, and
in particular about its ties with AKU in the Netherlands* The
general manager of VGF, Ernst Helmuth Vits, himself a ^'Leader
of the War Economy," was back in charge of the VGF plants at
Wuppertal, fifteen miles east of Diisseldorf. Throughout the latter
years of the war Vits had served as head of the Reich Association
for Artificial Fibers, the second of several Reichsvereinigungen

132 ALL HONORABLE MEN

established by Hans Kehrl to regulate and administer the strategic

industries. The first was the Reich Coal Association^ headed by
Paul Pleiger* Vits had already admitted to us that the guiding hands
on his supervisory board in VGF were those of Baron von Schroder,
Hermann Abs, and Fentener van Viissingen. But he had insisted
that his company^s properties deserved special protection because
they were owned by the Dutch AKU. Abs and von Schroder had
helped to protect them from seizure by the Nazis; and it was up to
us, he said, to see that his trusteeship of VGF for the Dutch owners
was not disturbed by the new regulations of the Allied occupying
forces.

We were not at all satisfied about the circumstances under which
AKU had acquired its supposed ownership and control o£ VGF back
in 1929; and wc were also curious to learn how AKU had managed
to maintain this control through twelve years of Nazi rule in Ger-
many and five years of Nazi occupation of the Netherlands. Back
in the United States some of us had already had an inkling of
what we would be up against at The Hague in trying to satisfy such
curiosity. Dutch AKU held the controlling shares in three of the
largest rayon firms in the United States: American Enka, North
American Rayon, and American Bemberg. The Alien Property
Custodian had proposed to seize these three as firms controlled by
German VGF; but the Dutch government in exile protested strongly
to the State Department* The Custodian's office finally agreed to
let the firms alone until after the war when the true ownership
could be established. The Dutch agreed, in turn, to make "full
information" available as soon as they got access to their records
in the Netherlands.

Really "full" information, we knew, would have to include in-
spection of the records of the Amsterdam banks which were sup-
posed to be holding the majority shares in VGF on behalf of Dutch
stockholders; and it would also have to include the right to interro-
gate van Vhssingen about his conduct of the affairs of VGF and
AKU. Had there been no conflict between the interests of AKU,
as a Dutch firm, and the activities of VGF as a major cog in the
German war preparations? In order to retain control of German
VGF, did AKU not have to make any concessions to German

THE NEW HAGUE CONVENTION I33

policy before the war.' How had AKU been a free agent in its own

foreign operations, with its biggest block of properties in hock with
the Nazis.? Since our interrogation of men like von Schnitzler of
LG. Farben, and our discovery of the mechanical principles of the
Himrnler fund in von Schroder *s bank, we were becoming skeptical
of businessmen who asserted that they had been above involvement
with the Nazis. Granted that AKU was a big and powerful corpora-
tion, had it been powerful enough to talk back to the Germans?
Or would it have wanted to if it could? Had not some of its power
in fact come from a meshing of AKU's foreign interests with
German plans?

On June 17, 1945, Desmond MacQuaide, my British executive
officer, and I left the Ruhr on a brief trip to the Netherlands in
search of answers to these questions. At Arnhcm the British military
government officer told us the AKU factories were only moderately
damaged, but that the directors were away. F. H. Fentener van
Viissingen, the head of the firm, was at his home in Utrecht. We
would not be able to see him, however, without first getting per-
mission from the Netherlands Military Administration at The
Hague*

Most people think of The Hague as a symbol of peace among
sovereign nations, and as a source of humanizing conventions de-
signed to take the brutality out of war and to make it more whole-
some. Hollanders think oi The Hague as the *'seat of government'*
of the Netherlands, in contrast with Amsterdam, the ''capital." This
distinction testifies to the "live and let live'* relation that exists be-
tween the bankers of Amsterdam and whatever political regime
inhabits the old buildings, straight out of a Dumas novel, that make
up the center of The Hague.

At The Hague our introduction to the Netherlands Military
Administration took place under the best possible auspices. At
dinner in the Hotel des Indes we met Brigadier Babington-Smith,
head of the SHAEF Financial Branch, who happened to be up
from Frankfurt on other business. He stayed over until the next day,
Monday, to go with us on our round of the Dutch officers in charge
of property matters, and to underline the SHAEF interest in our
inquiries.

134 HONORABLE M£N

The Dutch officers did not dispute certain facts. The combine,
AKU, had been formed July 26, 1929 by an agreement between the
shareholders of the Dutch firm known as Enka and the share-
holders of the German VGF. Through an exchange of shares the
new corporation, AKU, became the record owner of 99 per cent of
the stock of VGF. Through this control of VGF, AKU also got a
voting control of the VGF subsidiary known as J.P. Bemberg, A.G.
Immediately before the exchange, the Dutch company had out-
standing 25,565 shares of common stock. To make the exchange,
the outstanding common stock was increased by an additional
28,560 shares, all of which were turned over to the stockholders
of VGF. At the time of the exchange in 1929, therefore, the German
shareholders received better than a majority of the voting stock.
This stock was all in the form of unregistered "bearer" shares; so
that no record was kept of transfers or of ownership, except by
German and Dutch banks which were holding them for their
customers.

The question of voting control in 1945 was first a question of
who owned the majority of these common shares, Germans or
Netherlanders. If the majority were German-held, the sham "Dutch'*
ownership of German VGF and of the American companies meant
nothing. Even if the Dutch could prove that a majority of the
outstanding shares were being held by Amsterdam banks for Dutch
citizens, there would still be the possibility that some of these were
cloaking for Germans; but we were willing to cross that bridge
later. The Dutch oflScials said it would not be possible to let us go
to Amsterdam and talk to bankers, let alone examine their books.
The Netherlands Military Administration would appoint an officer
to make the necessary inquiries, and he would let us know his
findings. When this officer made his "report*" a few weeks later,
there was no bill of particulars. The report simply asserted that the
investigating officer was satisfied that between 70 per cent and
75 per ceat of the outstanding shares of AKU were owned by Neth-
erlands interests.

In 1929, there had been 54,125 common shares^ of which Germans

held 28,560. By 1945, the AKU had outstanding some 93,000 com-
mon shares. We had brought with us evidence of two transactions

THE NEW HAGUE CONVENTION I35

during the German occupation by which the Deutsche Bank had
acquired 20,000 shares and the Kunstseide Ring 10,000. This meant
that we knew of 58,560 shares which had at one time or another
been in German hands; and we had no evidence, as yet, of transfers
in the other direction. Even so, the investigating officer*s report, still
without evidence, asked us to believe that at most 30 per cent, or
27,900 of the 93,000 shares, remained in German hands at the end
of the occupation.

There was a further complication. The AKU firm, in addition to
the usual voting common stock and nonvoting preferred stocky had
outstanding an additional class of stock in the form of 48 "priority"
shares. These shares contained an "oligarchic clause,'* which put into
the hands of their holders the sole right to name candidates for
positions on the board of directors, and the right to control amend-
ments to the corporation charter. These 48 shares had been allocated
in the beginning, 22 to the VGF management, 22 to the Dutch
group, and the other 4, at the request of VGF, to the British firm of
Courtaulds, Ltd., which was co-owner with VGF in the firm of
Glanzstoff-Courtauids G.m.b.H. of Cologne.

From 1929 onward, the AKU board of directors consisted of
Fentener van Vlissingen and two other Netherlanders, and six
Germans, including, throughout the war, Baron von Schroder,
Hermann Abs, Ernst Viu, and Johannes Kiehl of the Deutsche
Bank, To counteract this appearance of dc facto German control
of the management of AKU, the investigation report of the Military
Administration contended that while there were many ways in
w^hich the Nazi regime could have upset the control of AKU,
actually there was no evidence of any case in which the Germans
acted against the Dutch interests or challenged the authority of
Mr. van Vlissingen. The report went on to state that Mr. van
Vlissingen at all times retained physical possession and control of
all 48 of the priority shares.

The Military Administration had no reply to other questions we
raised on the basis of correspondence found by our party in the files
of VGF at Wuppcrtal. Prior to 1929, North American Rayon and
American Bemberg had been owned by VGF. After 1929, they were
recorded as owned by AKU. But in spite of the change in record

136 ALL HONORABLE MEN

ownership, only routine reports went from the American subsidi-
aries to AKU at Arnhem, All correspondence on business matters
and all detailed reports o£ conditions in d^e United States, right up
to the entry of the United States into the war, went direcdy to
VGF at Wuppertal; and operating instructions went directly from
VGF to the subsidiaries in the United States. Still, the Dutch offi-
cials stoutly maintained that F. H. Fentener van Vlissingcn was
master of AKU*s fate and captain of its soul.

On our way back to Germany from our initial trip to The Hague,
we stopped off in Utrecht to call on Mr. van Vlissingcn. He was
polite, even cordial in a cool way; but he regretted that under orders
of the Netherlands Military Administration he could not talk to
strangers about the affairs of his company except on written instruc-
tions from The Hague. He said he had, of course, been on the board
of United Steel in Germany; and he had served as a director of
two coal-mining subsidiaries of the Flick combine, in addition to
his work with VGF. From 1933 to 1937 he had been president of
the International Chamber of Commerce, the organization of which
he is now treasurer, under the chairmanship of Philip D. Reed of
General Electric. His international affairs kept him busy in all parts
of the world. Because of his outstanding position in international
business activities, Rollins College in Florida had awarded him an
honorary LL.B. degree in February 1937, He did not care to discuss
the fact that in July of the same year, Adolf Hitler decorated him
with the starred Merit Cross; or that on July 5, 1940, after the Dutch
surrender to the Germans, he became chairman of the Dutch
National Committee for Economic Collaboration. When we saw
him on June 18, 1945, he was already heading the commission
appointed by the Netherlands Military Administration to purge
collaborationists from the Dutch government and from important
positions in industry.

We returned to the Ruhr as puzzled by the official Dutch defini-
tion of a "collaborationist" as we had been by the Luxembourgers*.
Somehow the function of a go-between to maintain smoothly work-
ing financial and economic relations across national boundaries
during a war is tacitly accepted in the business community as part
of civilized warfare. During the fighting, these matters are kept

THE NEW HAGUE CONVENTION l^J

rather quiet out of deference to people who are being shot or
bombed and who might become confused if the subject were raised.

The peculiar power of Switzerland, Sweden, the Netherlands,
and even much smaller nations as Luxembourg and Lichtcnstein,
rests on their ability to act as go-betweens for the bigger powers that
surround them. These countries have been like our own State of
Delaware, furnishing a nominal legal headquarters for large cor-
porations whose world-wide activities are controlled from some-
where else. But Delaware, aside from furnishing a nominal haven
for "Delaware corporations," also has its Du Pont. The same is true
in Europe. Sweden has its SKF bearing monopoly and Enskilda
Bank; Luxembourg has its Arbed; the Netherlands have their AKU
rayon and Philips electric. These firms are big fish in their own
right, whatever services they may perform for "foreign" corpora-
tions. If one of these big fish sets up shop in a small place Uke Dela-
ware or the Netherlands, it becomes a whale in a fish bowl. Then
even a casual observer can sec a difference between the "capital"
and the "seat of government" of the little nation.

In spite of this lack of balance between political and economic
forces, when we get into the discussion of postwar reconstruction
plans, we run into a diplomatic fiction that sovereign nations arc
sovereign nations. The men who sit around the international con-
ference table are representing France, the United Kingdom, Bel-
gium, Holland, Luxembourg. Diplomatic protocol forbids looking
behind the screen. It would be hard to imagine a newspaper dispatch
from The Hague beginning, "Representatives of France, the United
Kingdom, the Societe Gencrale de Belgiquc, AKU rayon, and Arbed
steel met today to discuss the division of financial aid under the
European Recovery Program.'*

After our experiences in Luxembourg and the Netherlands we
knew some of the ways in which the German economy of the
Four-Year Plan could easily be carried along into the postwar
reconstruction of Europe. Solid foundations had been laid in the
countries bordering on Germany. Here were leading cidzens of the
"liberated" territories ready to defend the interests of "their" com-
panies in the operation of strategic industries which the Nazis had
expanded into bastions of German self-sufficiency. We had already

1^8 ALL HONORABLE MEN

seen how the Ruhr became the heart of European heavy industry,
through concentration of high-cost iron and steel plants. Now we
were confronted with the coal-hungry synthetic industries in Ger-
many, built for autarchy, but oflcring to uke on the role of kingpins
in the reconstruction.

CHAPTER II

Electric Eels

THERE is a sound instinct that leads most people to look skeptical
when a demand for a business advantage is said to have come
from the "Government of the Netherlands," or from any of the
other small ponds in which big fish swim. During the war, the
counselors of some of the smaller embassies were familiar figures
in the corridors of the State, Treasury and Justice Departments. Of
these, few were more active than the counselors of the Dutch
Embassy on behalf of a certain big fish which was always served
with sauce Hollandaise, This was the electric lamp and radio tube
combine, N.V. Philips Gloeilampenfabrieken, or Philips Electric
Lamp Works, Incorporated, of Eindhoven, Holland — more com-
monly called Philips.

Presumably something had happened to the Philips properties in
the Netherlands during the German occupation; and in 1945 we
wanted to know what it was. But the tight blockade which the
Netherlands Military Administration had put up against investi-
gations of Dutch companies meant that we would have to use less
direct ways to find out* As a producer of electric lamps Philips was
only the second largest in continental Europe, with a production
a little less than half that of the German firm, Osram, which domi-
nated the European field* The Philips position in related fields such
as radio sets, radio tubes, radar and X-ray equipment was similar.
The German opposite numbers were different corporations, though
parts of the same complex with Osram. German Osram was a jointly
owned enterprise of Siemens & Halske and A.E.G., the German
General Electric Company, as was Telcfunkcn, the German radio
combine.

140 ALL HONORABLE MEN

Philips of Eindhoven had for a long time been a cogwheel be-
tween the German firms and tlieir American partners such as
General Electric. In 1935, for example^ H. F. van Walsem of Philips
had written to Clark Minor, head of International General Electric,
in connection with an international agreement which they were then
negotiating. As Mr. van Walsem put it: "We have • . . refrained
from embodying in the present draft the provisions agreed between
us with regard to the collaboration between your company, Siemens
and us on minimum selling prices and conditions. It was rather
difficult to do so and at the same time keep the agreement free from
conflicts with the American antitrust laws. We are, therefore, con-
tent to leave this understanding to a gentlemen's agreement between
you and us, which will, we are sure, be carried out by both of us
in the spirit in which it was entered into. , .

When Philips officials found themselves charged with violating
the American antitrust laws because several such gentlemen's agree-
ments had come to light they even asked the American courts to
rule that foreign corporations like Philips, doing business abroad,
might make agreements among themselves or with American cor-
porations without fear of A^merican laws. As they put it, "a different
test must be applied when considering the legality of actions of
foreign corporations w^hose activities are wholly abroad." This plea
for special treatment under the laws was unsuccessful; but with its
protected position in "neutral" territory Philips could be the center
for understandings and arrangements which the parties could then
carry out in other territories like the United States without any out-
ward signs of direct collaboration. Any similarity in the courses of
action of Dutch, German and American firms would be purely
coincidental.

If we could not find out direcdy from the Philips headquarters
at Eindhoven what the company's executives had done under the
German occupation, we might uncover some of the story from the
officials and records 06 Siemens and A.E.G. at Berlin. However, this
would give us only part of the story, as w^e already knew from our
brushes with refugee Philips officials in the United States during
the war. They had enjoyed the protection of what amounted to
diplomatic immunity in Washington; and it had proved impossible

ELECTRIC ££LS I4I

to piece together a satisfactory picture of Philips operations on both
sides.

Philips executives knew before the war that if the Netherlands
were invaded, they might have some trouble in keeping control of
their properties on both sides of the battle lines. They got the Dutch
government to pass a law permitting Philips to move its head
offices to Curasao in the Netherlands West Indies, and to leave
the offices at Eindhoven in the charge of trustees with limited
powers to carry on the business in the event of occupation.

The new head office at Curasao controlled directly the Philips
subsidiaries in the Dutch East Indies, Sweden and Switzerland. It
established two provisional trusteeships over Philips companies in
the British Empire and in the rest of the world outside of Axis
territory. The Midland Bank of London took control over the com-
panies in the British Empire. The Hartford Bank and Trust Com-
pany was given control over Philips companies in North and South
America, Spain and Portugal. If England should be invaded, control
of the British Empire properties in other parts of the world would
automatically go to the Hartford trustee. Philips properties in Ger-
many, Austria, Czechoslovakia and Poland were placed under a
trusteeship of a German holding company headed by Dr. Karl Mey,
who had previously served as director of German Osram.

All these trust agreements were so drawn that the Dutch execu-
tives of Philips kept the power to control properties and affairs of
the combine anywhere in the worid, so long as they were outside
Axis territory and free to act. The German trustee would take over
wherever the Axis moved in. The trust agreements provided for
rc-establishment of the prewar holding company setup under its
original Dutch control, as soon as the war emergency was over.

This holding company arrangement was good business so far as
the Philips company was concerned. All of their properties, both in
United Nations and in Axis territories avoided seizure by alien
property custodians throughout the war; and none of the branches
was even blacklisted by any of the belligerents. Every time an
agency of the United States government began to ask questions
about the setup through which relations were being continued be-
tween Philips branches in the United States and other elements of

142 ALL HONOEABLE MEN

the Philips network, especially those in Axis territories, diplomatic
representations were immediately made to the State Department.
This sounds at first like a small annoyance which should not have
prevented government agencies from doing their jobs. But wc
found diat every time a forma! complaint is lodged with the State
Department about the activities of even a minor oiEcial of some
department, the ofiices of two cabinet members and their highest
ranking subordinates are tied up for days drafting formal letters
and replies to one another. The offending official soon learns that
whether he is right or wrong, It is not a good idea to cause ques-
tions to be raised. In our case, wc told our staff to go ahead and ask
questions about Philips; but we had to pay for it by helping to
draft a series of replies from the Attorney General to the Secretary
of State.

In effect, the business arrangements of a company like Philips
got into the diplomatic pipes. All the procedures that normally
apply to serious questions of intergovernmental relations were
turned on to stop even the simplest inquiries. The effect was
something like what happens in slapstick comedy when the plumber
and the electrician get power lines and water pipes mixed up: frost
on the radio, Bing Crosby in the bathtub, and bedlam in between.
A hard-working section chief tries to find out whether a Philips
official from the Argentine, whose wife is a member of the Falange,
and whose yacht carries a fascist motto for a name, ought to be
allowed to enter the United States and have the free run of Philips
plants turtiing out secret radio equipment for the army. Suddenly
he finds the State Department behaving as though he had com-
mitted an act of military aggression against the Netherlands gov-
ernment in exile. After one or two such experiences, even a very
good section chief might prefer frost on the radio.

To make matters more complicated, Philips executives assigned
to the United States somehow persuaded some colonels and generals
in Military Intelligence tliat it would be a good idea to give Philips
permission to ship materials through the blockade into Axis terri-
tories* The idea was that company officials from our side would be
able to go with the materials and meet their partners from the
other side. Then they could bring back information about conditions

ELECTRIC EELS 143

in Axis territory. Some of us suggested that such a pipeline could

easily be a two-way affair. We wondered what kind of return in-
formation was valuable enough to exchange for goods and infor-
mation both. Wc had already showed how it was possible to get
such things as blueprints of the Eindhoven plants from the files
of American insurance companies which had handled the re-insur-
ance on Eindhoven before the war. Other types of business data,
accurate up to a month or two before Pearl Harbor, could be
obtained from businessmen already in the United States who had
been in Holland. What *'up-to-date'* information of a kind available
to businessmen was worth the price? It seemed likely that what
came back through the pipeline would be the gossipy chitchat of
intelligence reports. Most of those we were already receiving from
Switzerland were less informative than dispatches from the front
page of the Times, though stamped "secret.'* But the lure of vicarious
espionage prevailed. When Corwin D. Edwards, chief of the Policy
Section of the Antitrust Division, disclosed in a monograph for the
Kilgore Committee early in 1944 what we had been able to piece
together about the operations of the Philips companies, without
having dLCcess to "secret'* sources, officials from the Dutch Embassy
cried that publication of these disclosures had endangered the lives
of Philips officials in Axis territory.

While Philips officials played junior G-man with American oiS-
cers of the chairborne division in the Pentagon, relations of a more
substantial sort continued among the Philips companies in United
Nations, neutral and Axis territories. In 1942, Philips executives in
the United States proposed to transfer the ownership of certain
patents in Spain, owned by a Spanish Philips company, to other
Philips interests in United Nations territory. The German-controlled
Philips company in the Netherlands protested. The Philips officials
in the United States reversed their decision and even transferred to
the Spanish company all Spanish patents held by the Curacao head
office.

In Sweden, the Swedish Philips company and the German radio
concern, Tclefunken, who were partners in a number of agreements,

had joined in some parent litigation against other Swedish com-
panies in 1942. The Philips interests in the United States helped

144 HONORABLE MEN

out in this joint venture between Swedish Philips and German
Tclefunken by sending their power of attorney to the Philips in-
terests in Stockholm to aid in prosecution of the suit*

In Portugal, the Portuguese subsidiary, acting under the Ameri-
can trusteeship, got supplies from both the United States and Eng-
land. At the same time it also received patent applications from
Eindhoven and filed them in Portugal to obtain patent protection
in Portugal on behalf of the Netherlands company. The Portuguese
branch sent to New York reports of agreements between the
Netherlands company and German industrialists, and it received
from New York reports o£ Philips activities in the United States
and Latin America. The Portuguese branch received financial sup-
port from the Argentine Philips company, which was subject to
the United States trusteeship; but its accounts were audited by
accountants of the Netherlands office.

Philips officials in the Axis-controlled territories did not get quite
the same run of the roost as did their opposite numbers in neutral
and United Nations territories. One member of the PhiUps family,
Frits Phihps, stayed in Eindhoven to manage the properties in Axis
territories. But the Nazis put officers from the German branches in
charge of Philips properties in all Axis territories, and also replaced
many of the Dutch officials at Eindhoven.

For our purposes, we were not so much concerned with who had
done what in the Netherlands, as we were in reaching accurate
conclusions about the working of the system in Germany, and its
effects in other parts o£ the world. In the case of these electric com-
panies the German group in the international ring had again been
playing "king of the mountain,'' But the source of their inonopo]y
power was not so immediately apparent. In the struggle with France
over control of the iron and steel industry, the Germans had
perched on top of a huge coal pile placed in Germany by nature.
In the struggle for dominance in chemicals and light metals, they
had perched on a heap of patented technology, placed in Germany
by the historical accidents of war, the shortage of natural raw
materials, and the willingness of foreign competitors to trade con-
trol of technology for protection of their own domestic markets.
In the field of electrical equipment, lacking undisputed control

ELECTRIC ££LS I45

of patents and technology, they had built a "mountain'* of contracts
and gentlemen's agreements. The electric lamp agreement was only
one out of many arrangements in electrical equipment.

In the case of electric lamps, the world's principal manufacturers
shortly after World War I set up an organization named Phoebus
in Switzerland. The different companies then transferred to this
Swiss company their rights to control the particular bits of lamp
technology which each of them had previously acquired or devel-
oped. By a pyramid of agreements, many of them individually
worked out through protracted negotiations, the lamp companies
built Phoebus into a supranational planning center that could be
used to control and plan the lamp trade of the world.

Actually, the opening maneuvers for control of the world electric-
lamp trade began with a series of internal arrangements in Germany
at the end of World War I, before Phoebus was born. At that time
the German lamp market was supplied almost entirely by three
German manufacturers: Siemens & Halske, A.E.G., and a smaller
company, the Auergesellschaft, subsidiary of Degussa and better
known to an earlier generation of Americans as the source of the
patented *'Weisbach" gas mantle. During World War I, all three
companies lost their foreign branch factories and their rights abroad
to the use of the trade-mark "Osram" for electric lamps. Custodians
of enemy property in the countries with which Germany was at
war took away these foreign subsidiaries and the rights to the trade-
mark "Osram/" and turned them over to non-German nationals.

In 1919 the three German companies created a new company
known as Osram G.m.b.H., Kommanditgesellschaft, a limited lia-
bility partnership, for the purpose of combining their forces to
regain the lost foreign properties and markets. Each partner trans-
ferred to the new firm, Osram, its own lamp-manufacturing divi-
sion, its lamp patents, and its technical personnel and files. The
founding companies agreed to refrain individually from lamp man-
ufacture. With their combined power they were then able to merge
into the Osram firm all the remaining independent manufacturers
of Germany*

Osram then started to get control of foreign lamp companies. In
two notable instances, in the cases of the leading American and

14^ ALL HONORABLE MEN

British companies, Osram confined itself to reaching working agree-
ments. It was not necessary for them to engage in a struggle for
power. The A.E.G. of Germany was largely controlled by the Ameri-
can company, General Electric. Similar ties made cousins and
nephews of all the other interested firms in Germany, Britain and
the United States.

Possible "foreign" competition outside of Britain and the United
States led Osram to formalize the international organization. It was
in 1924, to reach agreement with large companies such as Philips
of Eindhoven, that the Osram group proposed the formation in
Switzerland of Phoebus, with each of the participating companies
sharing in the ownership and management. The Phoebus setup
enabled the British, German and American companies to bring in
some twenty-seven other firms. AH of them agreed to pool their
interests and to estabhsh quotas for the sale of lamps in world
markets. The quotas and voting rights in the control of Phoebus
were fixed by the bargaining positions of the participants at the
time the organization was formed. Osram became the largest quota
holder, and had the largest voting rights.

By July 1929, Osram and General Electric^s subsidiary for foreign
operations, International General Electric, created a "partnership
for all time." At the time of the 1929 agreement the American
ambassador to Germany reported to the State Department that
Osram, by making General Electric a full partner, had succeeded
in enlarging its markets and at the same time drawing General
Electric into the established arrangement of the international elec-
tric-lamp business. He pointed out that General Electric, on its part,
not only had made an attractive capital investment and gained
greater influence in the international lamp business, but also, at one
sweep, had established a close working connection with all branches
of the central European electrical industry.

From 1929 onward, the relations between Osram and Interna-
tional General Electric developed along lines similar to the working
arrangements of LG. Farben with its foreign partners. The Ameri-
can firm, by adhering to quota agreements and arrangements for
keeping out of marketing areas reserved by the Osram group for
itself or its other partners, received in return the protection of the

ELECTRIC EELS I47

combined technology and patent rights of the whole group. With
this power, General Electric could and did beat down any threat-
ened competition in the American domestic market.

With the world trade in electric lamps arranged by agreement,
it became possible for all the Phoebus companies to direct some of
their technical research toward increasing the ''efficiency" but at the
same time reducing the lifetime of their lamps* The lamp bulbs
which we have to replace more and more frequently in our home
light sockets burn out quickly by international agreement. The two
biggest worries of lamp manufacturers were the possibility of price-
cutting and the danger that electric lamps might last too long. The
General Electric Company persuaded the other Phoebus companies
to adopt the General Electric "formula" for arriving at die "eco-
nomic hfe of lamps." Upon the adoption of this formula in 1924,
General Electric*s European representative wrote home: "This is
expected to double the business of all parties within five years,
independendy of all other factors tending to increase it/* Thanks
to the Phoebus arrangement, an average householder like myself
now replaces sixty burned-out electric lamps of all shapes and sizes
in the course of a single calendar year, instead of the fifteen which
would have been a good average twenty-five years ago.

As early as 1934 some members of the Phoebus group became
worried because other members were manufacturing lamps de-
signed to operate at voltages slighdy higher than those of the
standard home lighting circuits^ These lamps would last too long
when operated at normal voltages. A.F. Philips, head of the Dutch
firm, wrote to Clark Minor of General Electric on January 30, 1934
that *\ . - there seems to exist in various territories a growing tend-
ency to supply lamps for higher voltages than in the past, which
therefore leads to the conclusion that in a great many cases such
lamps are being underrun.

"This, you will agree with me, is a very dangerous practice and
is having a most detrimental influence on the total turnover of the
Phoebus Parties. Especially with a view to the strongly decreased
prices in many countries, this may have serious consequences for
Phoebus and after the very strenuous efforts we made to emerge
from a period of long-life lamps, it is of the greatest importance

148 ALL HONORABLE MEN

that we do not sink back into the same mire by paying no attention
to voltages and supplying lamps that will have a very prolonged
life/'

Mr. Minor wrote back: "I quite agree with your proposal'*

Whenever this point is raised publicly, v^-hich is seldom, the stock
answer o£ the producing companies is that they have reduced the
lifetime of the bulbs to increase their efficiency in the use of electric
current; so that less current is required to produce the same amount
of light. Savings to the consumer from short-life bulbs would
depend on using bulbs of smaller wattage, thereby cutting electric
bills. It may be that in localities where electricity is expensive
some consumers have cut down wattage enough to make up the cost
of buying more bulbs. But no financial benefit comes to the average
householder who goes on replacing sixty-v/att bulbs with sixty-
watt bulbs, regardless of whether or not there has been a slight
increase in candle powder. Besides, in all this close figuring, no con-
sideration is given to the trouble of frequent replacements, or to the
fact that the price of bulbs couJd have been reduced to present levels
without shortening their life.

A spokesman for General Electric put the case for the short-life
bulb this way: *'When the life of an incandescent lamp is shortened
its light output is increased.'' What he did not mention was that
there are ways of increasing light output without shortening lamp
life. Technicians long since have discovered new filament materials
— patented, of course — which could make "high-efBciency" bulbs
that would last many times the present life of seven hundred and
fifty hours. The lifetime bulb, like the ^'everlasting safety match,'*
has stayed on the shelf since the time of its discovery.

Many more illustrations of practices like these have been spread
on the record of Senate committees in the United States; and we
found nothing amazingly new in the cascade of further particulars
that turned up in Germany* What did become clearer was the range
of new possibilities that such a union of forces opened up. One of
the original motives was to establish uniform practices and uniform
conditions among all producers. If possible, the public should be
kept from noticing the difference when the product was gradually
cheapened structurally faster than it was cheapened in price. But

ELECTRIC EELS X49

in any event, even if the public did notice the diflercnce, there

should be no easy alternative like buying another brand.

So far the motive could be classed as a "business*' motive, leaving
aside questions of good or bad. But once the means had been
devised to present an unbroken front in all dealings with the
"public/' we had found that — in Germany at least — it was only
a step to the unbroken front of the Himmler Circle.

This was what we had to face. We knew that if anyone should
try to wade into a system of this kind and talk about it in terms
of supply and demand, competitive marketing by independent
enterprises, and other notions of a '*frcc economy/' the confusion
could be practically boundless. Yet even as we completed our find-
ings, new arrivals were pouring ia from the United States to take
up jobs with the occupation forces and miUtary government. Their
fresh faces showed mixed horror at the bomb damage and pity for
the German civil population. The phrase "just like us" could be
heard more and more often in the big army mess at the Farben
building in Frankfurt. As mid-August came on, with its shorter
days and cooler nights, echoes ot "not Nazis, but businessmen" made
some of us feel suddenly chilly, and a little old, and a little tired.

PART II

The Lapse of a Policy

CHAPTER 12

The CaU of the Wild

"BRITISH Seize Ruhr Industries/* On December i8, 1945, this
headline appeared on front pages in the United States. British mili-
tary government had taken over the coal and steel industries. Some
sixty directors and managers of the coal syndicate, United Steel,
Good Hope, Mannesmann and Klockner were in jail as part of a
clean sweep to start the reorganization of Ruhr heavy industry.

I saw the headlines as I boarded a plane at Chicago, heading for
Washington to prepare for return to Germany. Since late September
I had been in the United States to consult with the State and War
Departments on plans for ending the "concentration of economic
power" in Germany. Now I had been asked to transfer to the W ar
Department as director of the Division of Investigation of Cartels
and External Assets, a new agency set up by General Clay at Berlin
in October.

Late Thursday afternoon, December 20, after completing routines
and forms, I started out of the Pentagon expecting to spend Christ-
mas in Chicago. General John H. Hilldring, director of the Civil
Affairs Division, met me in the hallway within sight of the exit.
''Hello! When are you off?" he said.

"They tell me they expect to start processing the papers the day
after Christmas, and I should be able to leave about January 15."

"The hell you say!" he roared. "Come on into my office.*' And
to his executive officer: "Colonel, now, what's all this about taking
three weeks to get Mr. Martin to Berlin? Who's in charge of this
case?"

"I believe Colonel Forney will be handling it, General," said
Colonel Laux.

154 HONORABLE MBN

"I want him in here tomorrow morning at seven-thirty to give
me a full explanation of this proposed delay! General Clay was
on the phone this morning and asked when Mr. Martin was

coming/'

The next afternoon, after a day of racing through corridors be-
hind ;et-propeljed army officers^ I began forcing my way through
the crowds that jammed airports, railway stations and every con-
ceivable mode of transportation. The first "peacetime*' Christmas
was turning into a nightmare of confusion for everyone. ''Peace on
Earth" was in every shop window^ whiie men of good will tore
each other to pieces trying to get on trains.

At LaGuardia airport, the crew of the C-54 looked glum as they
prepared to spend Christmas in Newfoundland; but an hour out
of New York the pilot detected something wrongs and back wc
went. After one more try, the crew went off for a forty-eight-hour
leave, and another crew took over. Again we went up, found diffi-
culties and returned. **No more flights until the day after Christmas'*
was the announcement. Most of the passengers melted away fast.
I asked to see the commanding officer, told him of my embarrass-
ment at seeing two colonels chewed up on my account, and men-
tioned General Hilldring's ultimatum.

Two hours later, in a new plane, with Bvc other passengers and
some mail sacks, we were over Boston and heading for Stephenville,
Newfoundland. For the first time in a week I had a chance to sit
still and think about the job ahead. I would be stopping first at
London for a few days to have some conferences at the British
Foreign Office, then going to Berlin to report to General Clay.

The reason for the proposed stop at the Foreign Office was that
the British contingent at Berlin was already blocking four-power
agreement on reorganization of the German combines. This made
no sense in view of the abrupt action the British government had
just taken to seize the Ruhr industries. True, representatives of the
new Labor government had reached an understanding with the
State Department at Washington on the terms of a law that would
define and prohibit "excessive concentration of economic power" in
Germany, But Sir Percy Mills was still in charge of economic
matters for the British at Berlin, in spite of the change of govern-

THE CALL OF THE WILD I55

mcnts at the July elections. Sir Percy was vetoing proposals of the
French, Russians and Americans, and even talking back to his own
Foreign Office.

It was difficult to see why the British element at Berlin, in spite
of directives from London, was blocking the deconcentration of
heavy industry instead of striking a new balance between heavy
and light industries in Germany. We already knew that certain
amounts of coal, transportation, communications, power, machinery
and equipment would be needed to keep chinaware, leather goods,
textile, food-processing plants, and the like in a good state of repair
and operation. Then it was necessary to decide what kind of ma-
terials should be produced for export so as to pay for imports of food
and raw materials. That should be settled by finding out what kinds
of products would be easy on coal and transportation and the other
weak spots. What kinds of things would use domestic raw materials
instead of imported ones, especially if the imports would be ex-
pensive? Instead of answering such questions. Sir Percy and his
staff seemed to assume that German industry should again produce
whatever it had produced before and during the war. This attitude
ignored both the facts of war damage and the policies of postwar
adjustment.

The position assumed by Sir Percy Mills on behalf of his group
in British military government showed a striking parallel with the
attitude we had encountered in our own Economics Division back at
Bushy Park. It was the revival of an argument that was supposed
to have been settled many months before so far as official American
policy was concerned. Nothing was being brought up in the new
arguments over Germany that had not been thoroughly canvassed
by the executive departments and by congressional committees at
Washington during the war. In the end, all these discussions and
arguments had been codified into a coherent plan. President
Roosevelt had turned to Secretary Hull at a cabinet meeting in
August T944 to ask whether our government had settled upon
definite measures for dealing with the cartels and the "excessive
concentration of economic power" in Germany. Stripped of State
Department phraseology, Secretary HulPs reply was *'No.** Presi-
dent Roosevelt then said it was about time the matter was finally

156 ALL HONORABLE MEN

settled, and he appointed a cabinet committee consisting of the
Secretaries of State, Treasury, War and Navy to prepare and submit
an over-all scheme.

Almost at its first meeting, this cabinet committee split over ways
of meeting two requirements for a satisfactory settlement of Ger-
many's future place in Europe, namely: 1) that the European
economy as a whole must be highly productive; and 2) that Ger-
many's future place in the European economy must not let Germany
dominate or control Europe from a military, political, or economic
standpoint.

The basic heavy industries in otlier parts of Europe had been
reorganized into a position of dependence upon the industries of
Germany. Some said that one way to end German control would
be to uproot the basic heavy industries of Germany, rebuild new
heavy-industry centers in other parts of Europe, eliminate German
financial control and management of industries outside of Germany
and finally let Germany build its economy around agriculture and
light or consumer-goods industries. German financiers and indus-
trialists who had been concerned largely with planning and consoli-
dating their controls over the European economy would have to be
removed, since it was precisely their kind of economic planning
which was not wanted*

Proposals along these lines were prepared in the Treasury Depart-
ment and put forward by Secretary Morgenthau. Parts of these
proposals were too drastic and showed too little concern for the
economic needs of Europe as a whole. Some of the details of the
Morgenthau Plan leaked to the press. Bedlam broke loose.

The War Department seized the opposite horn of the dilemma
and focused attention exclusively on quick German economic re-
covery, with only perfunctory attention to ''prevention of future
military activity," or to the economic balance of the rest of Europe.
Ignoring completely the fine points of how German finance and
industry had been ab!e to control the entire European economic
system, these proposals stressed rapid and "efficient*' industrial
recovery. The War Department prepared a draft of a handbook
to be issued to military government officers. This proposed hand-
book followed the view of the Economics Division of the U. S.

THE CALL OF THE WILD I57

Group Control Council at Bushy Park, leaving out all consideration
of reform in the basic shape of the German economy.

President Roosevelt became furious when he saw a copy of the
proposed War Department guide. He sent a stiff letter to Secretary
of War Stimson, instructing him to call in all copies and impound
them, and to find out who had been responsible ''all the way up
and down the line." The President said, *lt gives me the impres-
sion that Germany is to be restored just as much as the Netherlands
or Belgium, and the people of Germany brought back as quickly
as possible to their pre-war state. . . . There exists a school of
thought both in London and here which would, in effect, do for
Germany what this Government did for its own citizens in 1933
when they were fiat on their backs, I see no reason for starting a
W.P.A., P.W.A. or a C.CC. for Germany when we go in with our
Army of Occupation. Too many people here and in England hold
to the view that the German people as a whole are not responsible
for what has taken place — that only a few Nazi leaders are re-
sponsible. That, unfortunately, is not based on fact/*

Two documents finally settled the controversy. The first was a
directive issued in April 1945 by the Joint Chiefs of Staff and
addressed to the American commander in Germany. This document,
known as JCS 1067^ was kept in a top secret classification until
October 17, 1945. If it had been released for study, most of the
wrangling over the Morgenthau Plan would have been unneces-
sary. Pending final Allied agreements, this directive provided that
rebuilding of heavy industries, including iron and steel, chemicals,
nonferrous metals, machine tools, radio and electrical equipment,
automotive vehicles, heavy machinery and components, should be
kept to a minimum. Conversion of facilities to the production of
light consumer goods was to be encouraged. All possible measures
were to be used to restore transportation services and public utilities,
repair and construct housing, produce coal, and do anything else
necessary to prevent starvation, disease or serious unrest among the
German civilian population.

The exclusion of Nazis from office and from important positions
in industry and public life was explicit.

All members of the Nazi Party who had been more than nominal

158 ALL HONORABLE MEN

participants, and all active supporters of Nazism or militarism, were
to be removed from important positions in private enterprises as
well as in government. No such persons were to be retained in any
of the listed categories "because of administrative necessity, con-
venience or expediency." At least it was clear that our forces went
into Germany with the idea of digging out the members of the
Himmler Circle and their friends from their cozy quarters in the
substructure of Europe*s economy.

The directive also gave special attention to the concentration of
economic control:

You will prohibit ail cartels or other private business arrange-
ments and cartel-like organizations . . . providing for the regula-
tion of marketing conditions, including production, prices, ex-
clusive exchange o£ technical information and processes, and
allocation of sales territories. Such necessary public functions as
have been discharged by these organizations shall be absorbed as
rapidly as possible by approved public agencies.

It is the policy of your government to effect a dispersion of the
ownership and control of Gernian industry. To assist in carrying
out this policy you will make a survey of combines and pools,
mergers, holding companies and interlocking directorates and
communicate the results, together with recommendations, to your
government through the Joint Chiefs of Staff. You will endeavor
to obtain agreement in the Control Council to the making of this
survey in the other zones of occupation and you will urge the
coordination of the methods and results of this survey in the
various zones.

The second document that settled the controversy over postwar

policy was agreed upon by the heads of the Big Three at Potsdam
on August 2, 1945. It was known as the "Potsdam Agreement/*

The joint conference of the Big Three at Potsdam in July and
August occurred at a peculiar turning point in European history.
The British conservative coalition of the war period had been upset
by the Labor party victory in the July elections. Prime Minister
Attlee replaced Winston Churchill as British representative midway
in the Potsdam conference, and Ernest Bevin replaced Anthony
Eden as Foreign Minister. The British conservative view of German

THE CALL OP THE WILD 159

industry had been like that held by our War Department in the

first sessions of the cabinet committee in Washington, Now the
change of governments at London replaced the top negotiators. But
the rest of the British delegation at Potsdam was still composed of
Tories who shuddered at the very thought of upsetting the prewar
relations between British and German heavy industry. Looking at
German industry from a quite different point of view, the Soviet
delegation was preoccupied with the devastation of territories and
industries in Russia. They wanted, first and foremost, to assure a
very large amount of reparation from Germany, and were less con-
cerned about the rest of Europe.

Thus it was the task of the American delegation to produce an
agreement that would assure a productive European economic sys-
tem and redistribute the balance of economic power in Europe so
that Germany and German industrialists could not resume a domi-
nant position. The Soviet urge for quick reparations had to be
curbed. Indiscriminate reparations, including reparations taken
from current industrial production, might rebuild an undesirable
concentration of plant capacity in Germany, even while lowering
the standard of living of the German working population to a
depression level. On the other hand, the British conservative urge
for re-enactment of the Diisseldorf Agreement of 1939 had to be
blocked, too. Retention of the combines and the old German finan-
cial and industrial arrangements could give the Germans too much
control even though plant capacity was cut down.

Politically, the Potsdam Agreement provided that the reorganiza-
tion of government in Germany should be directed towards *'the
decentralization of the political structure and the development of
local responsibility." The same principle was applied to German
economic institutions. The agreement provided that "at the earliest
practicable date, the German economy shall be decentralized for the
purpose of eliminating the present excessive concentration of eco-
nomic power as exemplified in particular by cartels, syndicates,
trusts, and other monopolistic arrangements.'* It went on to direct
that "In organizing the German economy, primary emphasis shall
be given to the development of agriculture and peaceful industries.**
The industries that had served as a medium for centralizing power

l60 ALL HONORABLE MEN

in Germany were the ones that had become overdeveloped. By
throwing the emphasis on a more balanced German economy, the
new plan could end the consumer-goods shortage which had been
an incitement to looting of other countries, and make it impossible
for any clique of elite guardsmen in striped pants to mobilize the
German population for such a purpose.

The decentralization of power meant delegating the work of
organizing production onto a broader base, throwing responsibilities
to a greater variety of people operating under common policies or
principles. Germany, during the period of occupation, was to be
treated as a single economic unit, in the sense that common policies
were to be cstabhshed, with modifications to suit varying local con-
ditions. The common policies were to govern: a) mining and indus-
trial production and allocations; b) agriculture, forestry and fishing;
c) wages, prices and rationing; d) import and export programs for
Germany as a whole; e) currency and banking, central taxation and
customs; f) reparation and removal of industrial war potential;
g) transportation and communications.

The Potsdam plan was far from a sweeping "de-industrialization.**
Measures to build up a productive economy were to be taken im-
mediately. The occupation authorities were instructed to take steps
promptly: "a) to effect essential repair of transport; b) to enlarge
coal production; c) to maximize agricuhural output; and d) to
effect emergency repair of housing and essential utilities." Payment
of reparations was to leave enough resources in Germany so that
the people could live without an American WPA. The German
people were to be given "the opportunity to prepare for the even-
tual reconstruction of their life on a democratic and peaceful basis."

These constructive steps had a double purpose. Far from remov-
ing machinery from the coal mines and closing them, the plan
called for the greatest possible coal production. But at the same
time it would make no sense to enlarge coal production if Germans
were allowed to reopen too many of their coal-hungry heavy and
synthetic industries. Repair of the wobbly transport system would
not mean much if, at the same time, the Germans rebuilt too many
of the complicated industries that employed cross-shipping of inter-
mediate products back and forth across the country in the course

THE CALL OF THE WILD l6l

of production. For many similar reasons, the attempt to maintain
detailed central administration of great networks of interconnected
companies was discouraged.

Constructive plans for the control of Germany had to put emphasis
on transportation and fuel because these were the parts of the
German economy which the air forces had picked for a quick
knockout blow. In spite of any popular impression that German
industry as a whole had been knocked out, these were the two weak
points. The United States Strategic Bombing Survey had found
that German industry was in operating condition except for
coal supplies and transportation. Up till April 1944, the 421,656
tons of bombs dropped by the Allied strategic air forces did not
even take the starch out of the German economy* The Survey con-
cluded: "Neither the direct effects of the attacks, nor the indirect
effects resulting from the drain on manpower and materials, were
significant. In 1943, the basic industries were not yet strained by the
demands of war production and marginal reductions in the output
of basic materials had no effect on war output. The most that can
be said is that, without the raids prior to the spring of 1944, the
basic industries might later on have been somewhat less pressed to
meet the increased requirements of the armament and reconstruc-
tion programs."

In the six months from April to September 1944, another 757,364
tons of bombs were dropped, with heavy emphasis on transportation
facilities and oil production and storage installations. These targets
alone took 336,590 tons with the remaining 420,774 scattered in "area
bombing" of cities and miscellaneous industrial targets. This bomb-
ing brought a twO'thirds reduction in the supply of finished oil
products, and an even greater reduction in aviation gasoline, as
against the over-all average of one fifth for all industry.

After September 1944, there was a still greater concentration on
transportation and oil targets, for a total of 578,261 tons dropped on
these installations out of the grand total of 830,959 tons for the
period* This finale brought the so-called "collapse" of the German
economy. The Bombing Survey concluded that the continued attacks
on oil had prevented reopening of oil facilities, and that the heavy
bombing of transportation in the Ruhr and Rhineland had slowed

l62

ALL HONORABLE MEN

production of coke and steel and reduced power production. The
Survey report added: "It seems clear that the devastating blow to
basic materials was dealt by the strategic and tactical attacks on
transportation facilities primarily in and about the Ruhr area." The
transportation attacks cut off coal shipments. Since Germany was
far more dependent on coal than most other industrial countries,
the collapse of coal shipments **had decisive effects which were felt
throughout the entire economy, even in transportation itself. In Ae
first quarter of 1945, the shortage of coal set the limit to the opera-
tion of the German economy, and the lack of transportation facili-
ties set the limit to the supply of coal."

The policies agreed upon at Potsdam were not only in line with
the policies worked out by our own government at Washington,
but they had another important advantage. Even in the event that
we could not get the agreement of the other powers on practical
steps to carry out these policies, still there were constructive moves
that could be carried out in our own zone. It was untrue, as some
newspapers had claimed, that in the division of zones we got only
the scenery, while Britain and France got the industry, and the
Soviets the breadbasket. Actually, of the eighty-five combines that
dominated most of German industry, thirty-four had the head office
and principal place of business in the British zone, nineteen in the
Soviet zone, five in the French and twenty-seven in the American.
Furthermore, the greater number for the British zone was offset by
the fact that most of them were in coal, iron and steel, whereas those
in our zone covered the greatest variety of industries, and included
some of those most involved in international cartel deals.

These facts about the situation in Germany were already part of
the background I had to consider as our plane crossed the North
Atlantic. Now that the JCS 1067 directive and the Potsdam Agree-
ment had settled the American position, I thought the one serious
obstacle standing in our way would be the attitude of the British.
But I soon got forewarning of more trouble ahead. In the waiting
room in Keflavik, Iceland, were two of my colleagues in military
government, General McSherry, former head of SHAEF G-5
and now director of die Manpower Division at Berlin, and Fred

THE CALL OF THE WILD 163

Winant, director of Trade and Commerce and brother of the war-
time ambassador to England. They were westbound for Christmas
leave.

General McSherry greeted me with the news that I had been

"aboiished." The Cartels Division had been disbanded the previous
week. Some functions relating to German assets abroad had been
transferred to the Finance Division. But a new organization known
as the Decartelization Branch was to take over the remaining duties
of the Cartels Division, some of the duties of the Legal Division,
and all of the LG. Farben Control Office. The new branch in turn,
along with four other divisions, Industry, Food and Agriculture,
Trade and Commerce, and Reparations, had been swallowed up by
the very large Economics Division, headed by Brigadier General
William H. Draper, Jr.

Fred Winant added the news that civil service regulations had
just descended upon the military government organization, so that
in addition to the usual military red tape, it was now necessary to
"describe** all jobs in each division and branch according to civil
service procedures. While Army officers perspired over organization
charts, job descriptions, and rules for behaving like a lifelong bureau-
crat, civilian directors were sweating over tables of organization,
"201 *' personnel files, staff studies, concurrences, passes, travel orders.
In the meantime efficiency experts from Washington were having
a field day.

When the westbound plane left we were still waiting for weather
clearance from London. I sat down to digest the fiU-in I had just
been handed on Berlin, and then began to read a New York news-
paper for Sunday, December 23, that I had picked up at LaGuardia
but had not yet opened. In a statement datelined Washington,
December 22, Senator Kilgore charged that certain military govern-
ment officials were countenancing and even bolstering Nazism in the
economic and political life of Germany. He went on to say that these
officials *'take the position that German businessmen are politically
neutral and that no effort should be made to penalize German indus-
try or prevent it from recapturing its prewar position in world mar-
kets, . . . They look forward to resuming commercial relationships
with a rehabilitated German industry whose leading figures are well-

164 ALL HONORABLE MEN

known to them, rather than to striking out on new paths of economic
enterprise.** The Senator mentioned, in particular. General Draper;
Rufus Wysor, president of RepubUc Steel Corporation and head of
the Steel Section under General Draper; Frederick L. Devercux, re-
tired vice-president of an American Telephone & Telegraph sub-
sidiary and General Draper's deputy; and Colonel Pillsbury, my
predecessor as control officer for LG. Farben. "Nazi industrial or-
ganization is not repugnant to them and they have shown every
disposition to make their peace with it/* I recalled Graeme K.
Howard's book, America and a New World Order, and our previ-
ous encounter with him at Bushy Park,

I had with me a bulletin issued by the Department of State on
April 2, 1945, making public some documents found in Germany*
These documents contained plans prepared by the Nazis for a
future bid for power, based on their industrial holdings and wealth
concealed abroad. Among other things they had planned to appeal
to the courts of various countries, through dummiesj who were to
protest the "unlawful" seizure of industrial plants, patents, and
other properties by alien property custodians. If these moves failed,
tliey planned to repurchase the properties through friendly cloaks
and dummies.

These were things that could be tested. If Germans had spirited
away several hundred million dollars, as reported, to furnish a
nest egg for propaganda campaigns and other operations, we ought
to be able to detect actual results.

Another part of the German plan, according to the State Depart-
ment, was to have GtxmSLii technicians and other experts secure
positions abroad to circumvent the expected bans on military re-
search and development in Germany. Such people were to be made
available at low cost to industrial firms and technical schools in
foreign countries. It was also thought that German help in the
construction of modern technical schools and research laboratories
could be offered on favorable terms, to afford Germans an op-
portunity for designing and perfecting new weapons. The bulletin
went on to say that one immediate aim of this German program
would be to soften up the Allies through a plea for *'fair treatment"
of Germans; and to secure the removal, as rapidly as possible, of

THE CALL OF THE WILD 165

Allied control measures. The program was to provide for a rebirth
of German nationalist doctrines and give the German inner circle
new bases of operation.

We arrived at London the afternoon of Christmas Day; and on
Thursday, December 27, I w^ent with Theodore Achilles, First
Secretary of the Embassy, to the Foreign Office. We met with
William Ritchie and two others of the staff of the Honorable John
Hynd, Chancellor of the Duchy of Lancaster, in charge of German
occupation affairs. It soon became obvious that someone in our
Economics Division at Berlin not only disagreed with the official
Washington policies on cartels and combines, but also had com-
municated that disagreement to Sir Percy Mills and others in the
British clement.

Negotiations had been under way for two months between the
State Department and the Foreign Office to break the deadlock
over the "decartelization law" at Berlin. Mr. Achilles and I pressed
for a firm note from London to Sir Percy Mills. Instead of agreeing,
Mr. Ritchie told us that we had better get our own lines straight,
since the position we were taking did not coincide with that held
by our own Economics Division at Berlin. V/e pointed out that the
State Department at Washington and not the Economics Division
at Berlin fixed American official policy; but the British group turned
this aside and pressed their advantage for ail it was worth.

Following this setback, Mr. Achilles and I prepared to move to a
"line of retreat*' that had been suggested by the State Department
in the event that negotiations threatened to break down. This
''line of retreat" would be to suggest that, pending agreement on a
legal definition of "excessive concentration of economic power,"
we should agree to prepare a list of German combines that were in
any event clear and obvious cases of the type of economic concentra-
tion that had to be cut out. Actually it was the British group, in the
end, that suggested some such solution; and I prepared to leave for
Berlin to undertake the negotiations on this new basis.

At this point a heavy fog settled on England and the continent,
holding all air and channel transportation fogbound for several days.
It was an appropriate comment on our progress to that date.

CHAPTER 13

The Hollow Squares

TURNING Berlin into a seedbed of democracy through the in-
strumentality of a military organization was, to say the least, an
ambitious project. After my first introduction to the setup as a going
concern in January 1946, I thought ambition should be made of
sterner stuff.

General Clay's Office of Military Government for Germany (U.S.)
occupied a former Luftwafle headquarters. On Saturday mornings
a panorama of the individuals and prohlenis that made up the core
of American military government was assembled in General Clay's
conference room. Four long, polished tables arranged to form a
closed hollow square occupied the center of the room. Around this
hollow square sat the thirty-two men who constituted the top staff
and who headed the offices and divisions of military government.
For two hours, General Clay talked with each of us, proceeding
clockwise around the tablc^ hearing reports of progress or failure
in four-power negotiations or in the execution of policies in the
United States zone.

In another part of the American sector of Berlin was another
building, this one full of conference rooms, each with its hollow-
square table. The building, splendid in its park setting, where the
four powers set up their Allied Control Authority, was a former
court of commercial justice. It was now the seat of a strange kind of
international government. At the top of the ACA was the Control
Council, composed of the four military governors, whose word was
law. Next was the Co-ordinating Committee, the four deputy
military governors, who decided what matters to pass along to the
Control Council for final approvals Then there were the directorates,

THE HOLLOW SQUARES 167

corresponding roughly to the executive departments of a govern-
ment, and in each case made up of the four directors of the ap-
propriate division. The directorates, in turn, delegated specific duties
to various committees and working parties.

To establish a "democratic" basis for Germany's future, General
Clay ordered the staff of military government to turn the execution
of most policies over to "the Germans themselves." We were to
restrict ourselves to giving advice to the Germans, and "observing"
the results. If we did not like what we observed, our complaints
had to be forwarded through military channels.

Before the occupation was a year old one could begin to observe
that when the ^'Germans themselves," meaning the top echelons
of the German administrative agencies, liked the advice they were
given, they followed it. When they did not like the advice, there were
difficulties. One could also observe that advice tending toward the
re-establishment of the old patterns was well liked. Advice that
smacked of reform was distasteful.

By drift and by an inner logic of military organization, military
government was moving from its role as an enforcer of reform
policies to the role of a trustee or custodian of German "recovery,"
and moving along lines well charted in the habits of past genera-
tions. Back in the Ruhr, in May 1945, 1 had seen how the command-
ing general of the corps area would crack the whip because his
divisions were not getting the streetcars running and the rubble
cleared fast enough. The sense of being responsible for the welfare
of the people transcended directives that would have required this
responsibility to be turned over to Germans,

Now, at Berhn in 1946, under Genera] Clay's order that re-
sponsibilities should be turned over to "the Germans themselves,"
it was the reform policies that were being thrown first to German
administrative bodies. The directors of divisions watching over
repair of transport, reopening factories, re-establishing telephone
lines, allocating coal and other scarce materials, clung tightly to the
programs they had mapped out and offered arguments for delays
and exceptions^

One Saturday morning In February 1946, General Clay discovered
from the report of the Public Safety Branch that the Transport

i68

ALL HONORABLE MEN

Division had secured exemptions for several thousand Nazis work-
ing as supervisors on the railway system. The argument was
that if the Nazis were removed the trains would stop running.
This report confirmed a charge which had appeared in several
unfavorable press dispatches from Germany. General Clay's eyes
snapped an electric spark across the hollow square to the offending
division director. He ordered all the Nazis removed by the follow-
ing Wednesday, whether the trains ran or not.

The Nazis were removed and the trains still ran. But the next
week it was something else of the same kind; and the next, and the
next. The net effect was that while parts of the military government
organized boys* baseball leagues, parent-teacher associations, and
leagues of women voters, and pasted strips of paper over the
swastikas in school textbooks, top Nazis and Nazi supporters who
think democracy ridiculous moved into the key positions in the
economic and administrative life of Germany, or were never
thrown out.

Getting rid of Nazis or finding something useful for ex-Nazis
to do had been a spectacular proposition ever since the time, shortly
after V-E Day, when General Eisenhower relieved General Patton
of his command for saying that the difference between Nazis and
non-Nazis in GerrjQany was like the difference between Republi-
cans and Democrats in the United States. But the Nazis were only
a surface phenomenon compared with the deep-seated and persistent
mania of the Germans for centralizing audiority and concentrating
power. That the tnania was not alone a German one may be
gathered from what happened when the four occupying powers,
the United States, Britain, France, and Russia, tried to agree on the
text of a law to end what the Potsdam Agreement called the
"excessive concentration of economic power'' in Germany,

The matter had been taken up officially for the first time at the
second meeting of the Co-ordinating Committee of the Allied
Control Authority held at Berlin on August 17, 1945, with General
Clay in the chair. The Co-ordinating Committee had decided as a
first step to draft a control council law to govern the process of
economic decentralization. A few days later, at the third meeting on
August 21, General Clay presented for consideration a draft law

THE HOLLOW SQUARES 169

which would have set up a four-power Commission for Economic
Decentralization. The commission would be empowered to investi-
gate and to order the dissolution of enterprises or the termination
of contracts having a restrictive or monopolistic effect. Under this
law, contracts or other arrangements in restraint of trade would
have been declared illegal^ and excessive concentrations of economic
power in the form of cartels or combines would have been pro-
hibited. The Co-ordinating Committee could not reach an agree-
ment and referred this draft to the Economic Directorate for study.

In the Economic Directorate, the Soviet representatives on Sep-
tember 12, 1945 offered a counterproposal. The principal difference
vras that instead of leaving it in the hands of a commission to de-
termine for itself in each case what constituted excessive con-
centrations of economic power, this law would have defined large
concentrations in terms of certain standards of size. The enforcing
agency would have the right to grant exemptions if there was evi-
dence that the exemptions were necessary and would not defeat
the purposes of the law. The Economic Directorate agreed to use
the Soviet proposal as a basis for discussion and referred the draft
to a working party for detailed consideration.

At this point a serious hitch developed. The new text proposed
to establish definitions of the practices and the types of corpor2tte
structure that were to be considered illegal. This became known as
a "mandatory'* type of law. The British objected to a "mandatory"
law and proposed instead to set up an administrative tribunal with
power to investigate and make its own rules and regulations. From
the standpoint of American policy, there were two objections to the
British "nonmandatory" conception. In the first place, unanimous
agreement of the four powers would be required to take action in
any particular case; whereas, if the law itself defined certain
standards, subject to certain exceptions, unanimous agreement would
be required to make an exemption. In the second place, a non-
mandatory law would violate American notions of constitutionality,
because such legislation would not tell the German businessman
in advance what was Illegal and what was legal. The enforcing
agency would make up the rules of the game as it went along.

During the discussions of the draft law Sir Percy Mills, the British

17° ALL HONORABLE MEN

member of the Economic Directorate, had made no secret of his
strong opposition to any law that would do more than establish an
administrative tribunal, proceeding case by case, and by unanimous
vote. He had insisted^ of course, that his government agreed with
the purpose of the law "in principle." At the meeting of the Eco-
nomic Directorate on September 27, Sir Percy had stated that he
could not consider the proposed draft as if it were to be a law,
because only the Legal Directorate could draft a ''law." On Oc-
tober 5, the Economic Directorate forwarded its draft to the Legal
Directorate to be rewritten in legal form.

For the next two weeks it had been anybody*s guess whether the
higgling over theoretical legal points was a genuine disagreement,
or whether the proceedings were being deliberately stalled by de-
laying tactics. Wide differences in the constitutions, statute laws and
legal practice of the four occupying powers made a month s delay
in settling a legal point not an unusual occurrence. But in this case,
had noticed in the cables coming to Washington from Berlin
that Sir Percy Mills s grounds for objecting shifted from time to
time. We had noticed also that he was constantly driving for an
arrangement with the broadest grounds for making exceptions,
and one requiring a unanimous vote before anything at all could
be done. This meant that if we hoped to do more than put ink
marks on paper, the agreement at Berlin, whatever its form, must
start some action that could be stopped only by unanimous con-
sent; and not the other way around.

On October 24 the British objections were the subject of a trans-
adantic conference by teletype between Berlin and Washington.
General Clay, along with Ambassador Robert Murphy, his Political
Adviser; and Charles Fahy, head of the Legal Division; Laird
Bell, Chicago attorney representing General Draper from the Eco-
nomics Division; Russell A. Nixon, acting director of the Division
for Investigation of Cartels and External Assets; and several others
at Berlin, discussed the question of a "mandatory" as against a
"nonmandatory" law with representatives of the State Depart-
ment and other government agencies at Washington. The instruc-
tions from Washington were clear that the American policy called
for a "mandatory" law, in the sense that some definition should be

THE HOLLOW SQUARES IJl

included to indicate what types of power concentrations were con-
sidered illegal. Though Berlin should have wide discretion in
negotiating the precise content of the definition, the enforcing
agency must not be left with arbitrary power to pick and choose
what things to hit and what to miss. In view of the objection of
the British representative, who rejected even the idea of trying
to work out definitions of "excessive concentration," the State
Department said it would negotiate directly with the Foreign Office
in an effort to overcome the British opposition.

By November 27, 1945 the negotiations at Berlin had reached a
stalemate in the Co-ordinating Committee. At that time the United
States, French and Russian representatives were in agreement on a
draft law that conformed with the statements of United States policy
and the specific directives from Washington.

The British veto put the matter temporarily on the shelf. It was
still there when I arrived at Berlin in January 1946, after the con-
ferences at the Foreign Office in London. When I took over the
job at Berlin and read the back files of what had been happening
since September, it became clear that the deadlock had not been
due entirely to British opposition. During the negotiations, Mr.
Bell and others from our Economics Division had continued to
work out ^^compromises*' with the British and had dealt informally
with the French and Russian representatives in an effort to get
them to make compromises which Sir Percy Mills would accept*
This crosscurrent had gone on even after the teletype conference
of October 24 in which the official American pohcy was made
clear* The negotiations had fallen into an almost hopeless muddle
with the Economic Directorate holding to the British view, and the
Legal Directorate to the American. There the argument rested.

As I went over the papers before reopening negotiations, I
realized that not all of this had been a tempest in a teapot. The
wrangling, on the surface, was childish; but the future of the big
combines in the British-held Ruhr lay in the background. Certain
phrases in the Diisseldorf Agreement of 1939 began to take on a
new meaning. The Federation of British Industries had felt at
that time that Hitler's occupation of Czechoslovakia made no dif-
ference to the soundness of the collaboration program with the

1^2 ALL HONORABLE MEN

Reichsgruppe Industrie. Hitler's march had merely "created a
situation which, while it lasts, has made further progress impossible/*

Now that British troops held the Ruhr, was "further progress"
possible? In the Dusseldorf Agreement, the British and German
groups had said that their objective was *'to ensure that as a result
of an agreement between their industries unhcaldiy competition
shall be removed.''

Looking back on this agreement after the war, the point was not
that industries in Britain and Germany had eliminated competition
among themselves, but that they had done so as part o£ a new "way
of life/* Private industries were to arrange markets to suit their
own convenience, and then enlist the help of their governments to
beat down opposition. A particular enemy was the antitrust legisla-
tion in the United States, which stood in the way of this new form
of private world government. As the men at Diisseldorf had put
it: 'The two organizations realize that in certain cases the ad-
vantages of agreements between the industries of two countries or
of a group of countries may be nullified by competmon from the
industries in some other country that refuses to become a party
to the agreement. In such circumstances it may be necessary for
the organizers to obtain the help of their governments and the two
organizations agree to collaborate in seeking that help." This pro-
vision had been so evidently aimed at the United States, whose
industries could not legally join in such a scheme, that the head of
the British Board of Trade, Mr. Oliver Stanley, was questioned on
it in the House of Commons on March 21, 1939. His reply had a
double meaning. He said, 'There is nothing in this agreement in-
tended to be or that would be in conflict with the interests of
American industry."

Now the British element at Berlin, under Sir Percy Mills's direc-
tion, was plugging for enough exceptions to make possible a revival
of the German cartels and combines under other names. The argu-
ment was that the combines in heavy industry should be kept intact
so as to make it easier to "nationalize'' them. Sir Percy, a hard-
bitten Tory, was talking like a socialist, as though he favored public
ownership o£ industry. It was centralization of power he was after.
Sir Percy was battling to retain certain focal points o£ economic

THE HOLLOW SQUARES 173

power, especially in the Ruhr, to help the British position in in-
ternational trade. For that, he seemed willing to risk setting the
German juggernaut loose again. In the background was the need
to make Britain independent of dollar loans. Before Lend-Lease
came to the rescue in the early stages of the war, practically all
British foreign investments had been liquidated to supply the British
Treasury with foreign exchange, especially dollars, for military
supplies. Now we could expect some desperate gambles on the
revival of German power as Britain tried to write the Declaration
of Independence in reverse English.

The wranghng and cross-purposes in the American element at
Berh'n likewise were not just word battles. Soon after I arrived I
was asked to attend a meeting of all branch and section chiefs of
the Economics Division, to explain the policies and program of
my new branch. We met around the hollow table in GGncral Clay's
conference room. My explanation was greeted with a chorus of
objections, especially from men like Rufus Wysor, former president
of Republic Steel Corporation, who was then head of the Steel
Section in the Industry Branch. These objections were not directed
merely at my proposed program, but at the whole policy of re-
organizing the German cartels and combines. All findings of the
wartime investigations were rejected as though we had learned
nothing. The argument started from the very beginning. "What's
wrong with cartels, anyhow?" "Why shouldn't these German
businessmen run things the way they are used to?'* "What proof
have you that any of these agreements ever restricted any produc-
tion?'* "German business is flat on its back. Why bother them with
all this new stuif ?"

Given a little time, it is not hard to meet arguments of the
"What's wrong with that?" variety. The question was how to do
it at Berlin, in five-minute snatches, when dealing with people who
felt no hesitation about rejecting official policies, and who claimed
to have no knowledge of the things on which the official policies
had been based. For one thing, the documentation to back up the
policies was in thousands of volumes of testimony, government re-
ports, and court records in the United States, At Berlin, where we
were supposed to execute policy, not make it, we had only the

174 ALL HONORABLE MEN

documents one could carry in a brief case or send by pouch. Mr.

Oliver Stanley had been right when he told the House of Commons
in 1939 that there was nothing in the Diisseldorf agreement "that
would be in conflict with the interests of American industry,'* if
we were to judge by the men from American industry who staffed
our Economics Division,

After the first barrage of questions from General Draper's
assembled branch and section chiefs, I knew that this was to be a
job requiring patience. The fact that the gentlemen of our Economics
Division found it easier to agree with Sir Percy Mills than with the
policy of the Washington government was not an isolated phe-
nomenon. We could expect difficulty on every kind of economic
reform. The director of the Federation of British Industries had
been quoted in the London Times 011 his return from the Diissel-
dorf conference of 1939 as saying that "Their talks in Germany were
conducted in a very friendly spirit, with the great desire on both
sides to see the other man's point of view.'* I wondered whether
I could look forward to meetings around the hollow squares in
Berlin with gentlemen who would show **a great desire to see the
other man's point of view."

CHAPTER 14

Reducing Exercises

THE slogan that Sir Percy Mills used as a battle cry in the argu-
ments at the Economic Directorate in Berlin was that "great size
alone is not excessive concentration of economic power/* His fa-
vorite dictum was that passing a law against certain practices or
certain types of corporate organizations was the same as convicting
the German companies of a crime. He was fond of combining the
two ideas and exploding with the question, "Is it a crime to be big?"

This kind of argument served very well in four-power negotia-
tions. Because of language difficulties, it was never possible to
express complicated thoughts without the greatest difficulty. A short,
sharp challenge which begged three or four questions was a good
way to throw any discussion into the wildest confusion. One was
always forced to remember that four languages were being spoken:
English, French, Russian and American, Even with perfect transla-
tion by all the interpreters, there was still too much time lag for
any complicated rejoinder to be effective. With average translation
by the interpreters it required constant practice to speak simply
and to be accurate.

Before we undertook to prepare an answer to Sir Percy on the
question of whether or not it was a "crime'* for a German com-
bine to be too big, we had some matters to get straight within the
confines of our own military government organization. Differences
within General Clay's own Economics Division over the interpre-
tation of the directives were so violent that some of the branch and
section chiefs had reached the point of incoherence.

I found that in the months I had been away, my two predeces-
sors had, in turn, become involved in sharp disagreements with

176 ALL HONORABLE MEN

General Draper and his staff in the Economics Division. Colonel
Bernstein had resigned in October 1945, Russell Nixon, who fol-
lowed Colonel Bernstein as acting director of the Cartels Division,
had resigned on Decenaber 15, 1945, at the time of the reorganiza-
tion that made the new Decartelization Branch a part of the Eco-
nomics Division.

In one of my first talks with General Draper, I found that the
investment banker^s view was uppermost. He was fundamentally
opposed to the idea that the cartels and combines required imme-
diate reorganization, and was convinced that the ^'experienced Ger-
man management" had to be retained. He considered Colonel
Bernstein and Mr* Nixon impetuous, if not ruthless, in their con-
stant pressure for action to replace the old Nazi and Nazi-support-
ing managements and to reorganize the big companies. To start on
a fresh footing, I said that I believed the question of how to go
about eliminating the cartel system and reorganizing the German
combines should be accepted as part of the whole economic pro-
gram. General Draper disagreed. In his view, the war, the bomb-
ing, the division of Germany into zones, and the fact of the occu-
pation itself, meant that the cartels as such no longer existed and
that the combines were "fiat on their backs." There was no need to
take action in these first years of the occupation beyond enacting
a law to declare certain practices illegal in the future. The cur-
rent economic program should be one of economic recovery. Until
the German economy was in a "reasonable" state of operation, it
would be unnecessary, and in fact harmful, to undertake "drastic"
reforms. Therefore a program to eliminate "excessive concentra-
tion'* was not to be an important part of the immediate plan,

I countered by citing two specific booby traps that had shown up
in my first talks with General Drapers branch and section chiefs.
First, it was expected that a reparations program would take cer-
tain surplus industrial plants out of Germany. The way in which
these plants were selected couM have an effect on the shape of the
future German economy. If the plants belonging to the few inde-
pendent industrial firms were removed, while those belonging to
the large combines were left intact, the degree of control left to
the management of the large combines would be increased. Sec-

REDUCING EXERCISES 177

end, the Industry Branch and certain appointed German authori-
ties were jointly handUng the allocation of coal and other scarce
raw materials to industrial plants. Under General Clay's order, this
authority was to be turned over more and more to the Germans.
The power to allocate was the power to withhold. If materials were
allocated to plants of the big combines and withheld from plants
of independent firms, the proportionate power of the combines
would be increased. If materials were allocated for the revival of
the heavy industries and withheld from the light industries, the
resulting economic balance would be the opposite of what we
wanted.

The allocation authorities were already withholding materials
from plants which were expected to be removed as reparations; so
that even though plants of independents might not be removed for
some time, the effect of letting combine-owned plants get further
ahead of the independents in material allocations would be the
same as actual dismantling and removal. I suggested that the De-
cartelization Branch should work with the Industry Branch on
interpretations of the reparation and allocation policies, since re-
forms of this kind would have to be built in from the beginning.
They could hardly be carried out at some future date, after Ger-
many's industrial plant had been rebuilt according to another
blueprint. General Draper did not concur. He held that if we "de-
cartelizcd'' the big combines properly, there would be no differ-
ence between industrial plants owned by the combines and those
owned by independent firms. There would be no need to "dis-
criminate."

At the end of these conversations, I felt like a doctor confronted
with a patient who weighed three hundred and sixty pounds, who
was too big for his own good, and who was always stepping on the
toes of innocent bystanders. General Draper was saying that if I
"reduced** the patient properly, there would be no need to change
his weight, shape, or size, or to take any fat off him. Also, once
we had him properly "reduced," it would not be necessary to take
any special steps to stop him from tramping on other people.

Echoing the "recovery first, then reform" idea, the other branches
of the Economics Division promptly made it clear that they did not

178 ALL HONORABLE MEN

want advice on the relation between the cartel policy and their par-
ticular operations. That could wait until later.

The control of LG. Farben plants, however, and the disposal of
these facilities, was a requirement that could not wait for a period
of 'Veform" after Germany had "recovered." By order of the Con-
trol Council in its Law No* 9, approved in November 1945, the
I.G. Farben plants had already been seized, the bank accounts im-
pounded, and the old management ousted. Those plants which were
to be given up as reparations had to be selected. Plants having
only a wartime use had to be picked out and dismantled. Plants
that were to reopen under new management had to have managers.
Scientific research in the Farben laboratories had to be supervised
to prevent further work on new military weapons.

Here again I had something to learn. As Control Officer of LG.
Farbcnindustrie, despite the language of the Control Councirs
order I was not actually to carry the responsibility for executing
Law No. 9 in our zone. I must immediately delegate many functions
to other branches over which I had no control. I found that the
Industry Branch was to make the selection of plants to be shipped
as reparations, dismantled, or reopened, and to pick the persons
"quahfied" to operate the reopened plants. Another branch was to
control scientific research. Still another branch had custody of the
impounded funds and responsibility for preventing unauthorized
dissipation of the assets. By military theory all responsibility rested
on the shoulders of the commanding general, and everyone else was
an adviser only. Stripped of special military language, then, my job
was to sit with the French, British and Soviet control officers and
try to arrange a plan for fmal disposition of the I.G. Farben proper-
tics. Meanwhile, with the help of a small staff, I was simply to
observe what the Germans and the other branches of military gov-
ernment did with the property.

In the same way, my over-all Job as head of the Decartelization
Branch was to try to get British, French and Soviet representatives
to agree on the text of a law to prohibit the "excessive concentra-
tion of economic power" in Germany, while assembling a staff of
lawyers, economists and investigators to make recommendations
through General Draper to General Clay on any steps we might

REDUCING EXERCISES I79

think necessary. On matters of initiating reforms wc were to follow

the military rule that the man at the top took all tlie blame and had
all the say. The written orders from Washington meant whatever
the commanding general at each level said they meant. What he said,
in turn, depended on what his staff furnished him as proposals to
be approved or rejected. But when it came to criticism of orders
from Washington, wc discovered that army officers were protected
by the "civilian'* rights of "free speech'* instead of being subject to
the military formula that "orders is orders."

We soon found that the decartelization law negotiations were
not the only ones in which violent divisions of opinion existed
within the American headquarters. The same kind of thing had
been happening to the arguments over the economic unification of
Germany and the level of heavy industrial production. The physi-
cal plants of German industry, except for spectacular but superficial
damage to the buildings, had come through the bombing and
fighting very largely intact. After the fighting it was lack of
transportation and coal that kept the plants closed. The United
States Strategic Bombing Survey showed that the temporary stop-
ping of production was quite different from "destruction." Actual
destruction of physical plants had amounted to some 15 or 20 per
cent of the expanded wartime capacity. The rest of the machines and
equipment could operate if they had coal to burn and transport to
bring raw materials.

Under the Potsdam Agreement as much of the coal as possible
was to be fed into light or consumer-goods industries. These were
the ones to be encouraged in postwar Germany, and the ones of
which Germany had few enough to begin with. On the other hand,
there was the heavy-industry concentration of the Ruhr that the
industrialists of the 1920's had deliberately cut off from its former
balance with the heavy industrial areas of French Lorraine. The
proposal, then, was to take some of the heavy-industry plants out
of the Ruhr, where they could not hope to have coal and iron ore
for years to come. This excess equipment was to be used to restore
heavy-industry areas in France, Belgium and other countries which
had been the victims in Germany*s economic war. The principle
was clear, but the details had to be worked out.

l8o ALL HONORABLE MEN

The first steps in working out the details were the four-power

negotiations that started in the Economic Directorate in the fall of
1945 and concluded with the Level of Industry Agreement of
March 29, 1946, The path to this agreement was not strait and
narrow^ The American and British elements were working toward
a restoration of the Ruhr as a center of economic power. Both ele-
ments brushed aside the German labor unions and joined forces
with the industrialists. The Soviets preferred the political arena
where numbers count and they might hope to gain support from
organized labor, which was being so pointedly ignored by the
Americans and British. The failure of the American and British
elements to make any overtures to middle-of-the-road labor groups
is still one of the unexplained phenomena of the occupation.

The French position was fairly clear. Even though the French
had not themselves been a party to the Potsdam negotiations, they
had a great deal to gain and nothing to lose by a straightforward
execution of the part of the Potsdam Agreement that dealt with
reparations and the level of German industry.

The British position was a little more complicated. The British
held the Ruhr. At home Britain was short in raw-steel capacity.
If they all owed steel production to rise in France and remain low
in Germany, British experts felt that their chances of getting their
hands on raw steel for the British processing industries would be
remote. Whoever has raw steel — in this case it would be the
French — wants to process it. If the British were to get new sup-
plies of raw steel for their processing industries, they would have
to build steel plants in Britain; or, since they were in control of
the Ruhr, they could hold out for enough surplus steel capacity to
supply their additional requirements, as well as German needs. Sir
Percy Mills plugged for two things: a high rate of steel production,
and authority for the zone commander, in this case the British com-
mander, to interpret and carry out agreed four-power policies. There
were to be no "internationaF' commissions or controls if they could
be avoided. International agreements on the level of generalities,
yes. But international interpretation and applications, no.

The Soviet position was peculiar in another direction. The Rus-
sians wanted reparations out of Germany, cither in the form of in-

REDUCING EXERCISES

dustrial plants or of finished products. They began packing and
shipping factories almost as soon as the shooting stopped in 1945.
But then trouble developed. Many of the factories proved useless in
their new setting, which was an economic desert. The scorched-
earth policy had left none of the satellite industries that are needed
to supply special equipment and services to a big plant. A large part
of I.G. Farben*s *Xcuna works,'* the synthetic-gasoline plant near
Leipzig, was packed up and shipped eastward in August 1945. Be-
fore many months, however, the carloads of equipment from Leuna
were being shipped back again and put into operation on the orig-
inal site.

This situation led to a sharp disagreement. The Russians at-
tempted to designate some plants as reparations, but operate them
in their original location in Germany. The other powers held this
to be a violation of the reparations policy. The reason given at first
was that taking ''reparations from current production" would leave
a dangerously large number of industrial plants inside Germany.
That it was a mistake to leave the Germans with a large industrial
potential to pay reparations had been one of the great lessons of the
other war. But by the end of 1946, the cry against reparations from
current production was to be based not so much on the danger of
industrial potential in Germany, as on the fact that it would subtract
from the total goods available to the German population. That
would force the United States and Britain to import materials into
Germany at their own expense to help support the Germans.

Another point where Russian policy crossed with the others, and
with British policy in particular, was in the matter of international
control. The British and Russian forces had their respective rea-
sons for wanting to retain independent authority to interpret agreed
policy in their own zone of occupation. But, for other purposes,
both also wanted "'unification.'^ A feud was inevitable over what
kind of unification. The Russians wanted the political unification of
a central German government. The western powers preferred the
economic unification of industry and trade.

In the beginning, in 1945, the lines had not yet been drawn on
the issue of "economic unification,'* which later became the chief
bone of contention. It was only after the level of industry agree-

l82

ALL HONORABLE MEN

ment that the Soviets began to insist they could not agree to make
Germany one large free-trade area, without a corresponding agree-
ment on a government for the whole of Germany; and the western
powers said they could not agree to discuss a central government
until trade barriers had been removed and Germany was function-
ing as a single economy.

The four-power arguments in the early stages of the occupa-
tion, beginning in the summer of 1945, left real recovery and re-
form on the sidelines. To get the political support of large land-
holders the occupying powers might abandon land reforms needed
for agricultural recovery. To get the support of established industrial-
ists, coal might be given to the politically most powerful. For the
same reason, licenses to engage in business might be so allotted as to
restrict new production, instead of expediting it. We knew that
Germany was almost bound sooner or later to become a football.
Once it did, recovery would follow the same lines as in the past.
Therefore it was especially important to keep the issues clear;
but the Americans at Berlin, especially on the economic side,
dropped the ball, fumbled, dropped it again. Everything got very
muddy.

The Potsdam Agreement had been in effect for two months
when Dr. Don Humphrey, ad viser in the Economics Division, cir-
culated a memorandum dated October 15, 1945 in which he pro-
posed that the intentions of the Potsdam directive should he re-
versed, that coal should be kept and used industrially in Germany
instead of being furnished to countries like France, and that the
greatest emphasis in German production should be on highly man-
ufactured items like machinery. He said: "It is recognized that the
claims of the nations importing coal are persuasive, and that for the
moment we are operating under a directive, [Italics added.] Never-
theless, the point must be driven home that this decision is tanta-
mount to subsidizing the coal-importing nations from the German
economy, thereby forcing us, the Americans, to subsidize the Ger-
man economy. Coal is, and during the next year will remain, the
factor limiting production. It should therefore be used in the man-
ner best calculated to limit our liabihties — that is, to balance Ger-
many s foreign trade. This means that at the earliest possible mo-

REDUCING EXERCISES 183

ment, coal should be converted into the most valuable form for
export. This probably is machinery."

The "moment" during which "we" were operating under the
Potsdam directive soon passed, and in a short time it was fashion-
able to say that the economic decisions at Potsdam had "proven
unworkable." Two years later, the press was reporting a remark by
Dr. Humphrey at a meeting in Paris to the effect that the Potsdam
Agreement was a "dead duck."

The "duck" had begun life as a very sick chicken. Early in the
fall of 1945, even before Dr. Humphrey s memorandum, Dr. Calvin
B. Hoover, Duke University economist, had been hired as an
adviser by the Economics Division at Berlin. His assignment was
to prepare specific proposals for reducing German heavy industry
and building up the light industries. His report was to be used as a
basis for establishing the American position on details during the
four-power discussions then in progress on the level of German
industry.

The report by Dr. Calvin Hoover, instead of showing how the
economic readjustments required by the Potsdam Agreement could
be carried out, argued that they were impossible. Looking at Ger-
many alone, and largely disregarding effects on other European
countries, the Calvin Hoover report urged restoration of Germany
along the lines of its prewar and wartime economy, with a high
degree of emphasis on heavy industry and the retention of coal
and semifinished products inside Germany. Proposed coal exports
to coal-consuming countries like Belgium and France were to be
cut down and iron and steel production schedules in Germany
boosted. The theory was that this would be the quickest way to get
valuable exports out of Germany to exchange for food and raw
material imports, thereby limiting American expenditures.

At that time no Marshall Plan w^as being discussed. Therefore,
the presumption apparently was that delayed recovery in other
parts of Europe would not add to the burdens of the Am.erican tax-
payer, whereas the slightest delay in German recovery would en-
tail added costs to be paid by the United States.

The United States ultimately took it on the chin both ways. The
coal that was kept in Germany was allocated largely to rehabilita-

184 ALL HONO&ABLE MEN

tion o£ the heavy industries instead of producing exportable goods.

As late as 1947 we were still finding glass factories and other light-
industry establishments which were all set to produce for export,
but which were still shut down for lack of coal. Coal and machin-
ery, meanwhile, were being poured into "rehabilitation*' of heavy-
industry plants. The export program lagged behind estimates, re-
quiring more and more dollars in food and raw materials from the
United States. Later, when the Marshall Plan came along, the extra
costs of delayed recovery in the other European countries which
had been deprived of German coal also fell on the backs of Ameri-
can taxpayers.

When the Level of Industry Agreement was finally reached in
March 1946, the British appeared to have lost their argument for
a very large German iron and steel capacity. Germany was allowed
to retain enough plants to produce 7,500,000 tons per year or about
a third of the wartime output; but actual production was not to
exceed 5,800,000 tons in any year without approval of the Control
Council However, even with the agreement signed, the argument
did not stop. By July 1947, though the steel industry of the Ruhr
was producing at the actual rate of about 2,500,000 tons a year, the
United States and Britain agreed to raise the ceiling on production
from the four-power agreed figure of 5,800,000 tons to a new figure
of 10,700,000 tons per year. French protest held up the conclusion
of this new agreement until three-power negotiations were under-
taken in London, but finally the French had to capitulate. They got
only the promise of a litde more coal from Germany in the future,
after German production had increased.

Throughout the time from March 1946 to the new jump in per-
missible steel production in this London agreement of 1947, a
stream of American "experts'' was brought to Germany on short
visits to see the German economy at first hand, under the guidance
of the Economics Division. The reports of these visitors echoed the
conclusion that German recovery demanded greatly increased em-
phasis on heavy industries. In their reports the visitors frequently
referred to the "proven impossibility" of something which no one
had yet tried to do. With equal frequency they reported the "mount-
ing chaos" that was supposed to have resulted from the ruthless

REDUCING EXERCISES 185

"Morgenthau Plan of deindustrialization.'" Other damage was al-
leged to have been done by drastic reforms and alterations that
were never actually imposed upon the German economy. It became
customary to refer to the urgent necessity for "reversing the former
policy of destroying German industries."

These comments on Germany became standard fare in the United
States within a year after the occupation began. At this point no
steps had been taken to carry out an "antitrust" policy anywhere
in our zone of Germany except for two cases: the seizure of plants
and assets of LG. Farbenindustric; and, in February 1946, the
appointment of a trustee to administer the coal wholesaling firms
in our zone that had belonged to the big Ruhr collieries. Yet the
impression was now being conveyed to the American public that
the lag in Germany's recovery was to be ascribed not to German
indifference or apathy, or to deliberate sabotage of recovery by the
old management groups, evidence of which had been steadily ac-
cumulating, but to the decartelization program and the removal of
Nazis from high positions in business management* With Heinrich
Dinkelbach of United Steel running the iron and steel industry of
the British zone; with Ernst Helmuth Vits of VGF running the
synthetic textile program; with Hermann J. Abs of the Deutsche
Bank moving up fast as a "financial adviser"; with Hugo Stinnes
and the men of the coal syndicate being groomed for the expected
bizonal coal authority; and with all the others **back again and
better than ever,** it was hard to discover which important Nazis
were supposed to be missing.

Public impressions of what was happening in Germany changed
swiftly from the time when reforms had to be delayed in the interest
of recovery to the time when delayed recovery was blamed on the
drastic reforms. Looking back, it is hard to fix the particular mo-
ment at which the transformation took place. If the German heavy
industrial "fat man" had actually been reduced, when and how was
it done?

CHAPTER 15

Sabotage

WHILE the Economics Division was beginning to complain of
impediments to German recovery, any such remarks aimed in our
direction were gratuitous. For a long time, as far as German com-
bines were concerned, we had no authority to do more than plan
steps for the future. When our plans were finaUy worked out, they
took account of the need for a sound economic recovery and were
approved in principle by General Clay. The only reorganization
which had been sanctioned by a four-power agreement was that of
I.G. Farben. While we waited for four-power agreement on a broad
program of reorganization for other combines, or for General Clay s
permission to proceed alone in our own zone^ we concentrated our
efforts on the Farben plants. The idea was to use the reorganization
of this one giant as a proving ground for ways to handle the others;
but eventually it stood out as the only industrial reorganization that
our military government attempted — a dance of the skeletons in the
army's "greatest show on earth."

Colonel Pillsbury, my predecessor as control officer for I.G. Far-
ben, had established a Control Office at Griesheim, near Frankfurt,
with a staff of thirty officers. To get ready for the first meeting of
the four-power Committee of Control Officers in the last of Janu-
ary 1946, General Draper and I agreed that we should ask for a
report from our LG. Farben Control Office on the condition of
Farben plants and assets in our zone, and on what, if anything,
had already been done since the seizure of the properties on July 5,
1945. Several officers came up from Griesheim to prepare the report.
We discussed the project first in General Draper's office before they
went off with their papers and figures to write the story, I noticed

SABOTAGE 18^

that Senator Kilgore's blast in the press on December 23, 1945 was
still fresh in the minds of General Draper and the men from Gries-
heim. They were eager to make a good showing in the number of
plants made available for reparations, or destroyed as primary war
plants, and in the controls that were being maintained over the
properties that remained.

We presented the finished report to the three other I.G. Farben
control officers at the first meeting of the four-power committee,
and furnished copies to the Economic Directorate. We also pre-
sented a tentative plan already prepared at Griesheim as a basis
for the reorganization of the I.G, Farben complex into separate
economic units.

Much of the report became inaccurate with the passage of time
because it had been written in optimistic double meanings. Plants
were listed as "declared available for reparations,** which sounded
like an accomplishment. Later many plants were withdrawn
by the Industry Branch pending "further study" of Germany's
needs, or they were included in General Clay's blanket order to halt
reparations deliveries until the Russians agreed to economic unifica-
tion of Germany. Plants listed "to be destroyed as war plants*' were
actually treated much less drastically. Parts which could be con-
verted to some other use were retained and reopened. At Gendorf,
for example, was a poison-gas plant which had used slave labor from
Auschwitz and in turn had supplied both gas and candidates for
the Auschwitz gas chambers. Part of the Gendorf complex was a
plant producing ethylene glycol, an intermediate product in the
manufacture of poison gas, but also used as an antifreeze. This
was retained for peacetime use.

So with other parts of the war-built plants. Reinforced concrete
bomb-resistant buildings which could serve as warehouses were
saved. SliclWoading equipment that could be adapted to some other
use was kept. Only the few buildings and the equipment that
could not possibly be turned to some other purpose was blown up
in a spectacular demonstration of our ''determination to extirpate
the German war machine, root and branch."

While much of this was explained as only good common sense
— saving as much as possible from the wreckage — we found that

i88

ALL HONORABLE MEN

more often than not a **bargaln-basement" mentality was dictating
the action. The German cellar was becoming cluttered with things
that could be had cheaply and might come in handy some day.

On one of my first return trips to the Ruhr in February 1946,
I found that an armor-plate mill at Haspe, designed to roll the
heaviest sections, was being prepared with all its slow and pon-
derous bulk to roll thin sheets for transformers or for tin-plating.
I knew from my own work in steel plants that this was a far cry
from the efRciency of a high-speed continuous strip mill — which
can not be converted, by the simple turn of a screw, into an armor-
plate mill.

Without wasting time in argument with the industrial brains
who were pawing through the German junk-pile looking for sal-
vage, the four-power I.G. Farben Committee set up a working
party to study the entire maze of Farben plants in all four zones.
The working party was to find out which plants or groups of
plants could be operated economically as separate units. The raw
materials must be either self-contained in the unit or available on
the open market; and the products must be salable. With those in-
structions, the working party got busy, and by January, 1947, we
had four-power agreement designating twenty-one separate manu-
facturing units and seven mining and extractive units in the United
States zone, employing over eighteen thousand workers, out of the
complex of nonwar plants that had employed about thirty-five thou-
sand. Within another six months, practically all the remaining plants
had been grouped into a total of fifty separately operating units.
At the same time, similar units were being carved out of the Far-
ben properties in the other three zones.

We designated other working parties to line up questions on
patents and trade-marks, on LG. Farbcn*s former stockholding in
other firms, on international and domestic cartel agreements, and
on the formerly centralized selling and accounting arrangements.
We reached agreement on the American proposal that in each zone,
pending final decisions establishing the new ownership of the sep-
arate units, the control officer might designate a trustee for each
unit and transfer the legal ownership of the properties from the
Allied Control Council to this trustee.

SABOTAGE 189

We knew these first steps had a great weakness. They left the
physical and economic basis of the old I.G. Farben empire intact,
except for the removal of common financing and selling, central-
ized accounting, and centralized direction from a single board of
managers and supervisors. If German trustees could be found to
operate the plants independendy in good faith, and not under secret
agreements to "co-ordinate" their activities through the ousted man-
agement, there was a chance that plant groups which formerly had
concentrated on particular products or on intermediate raw mate-
rials would branch out and manufacture whatever products they
could sell. In that way the old interdependence of plants and cross-
shipping of intermediate products would be replaced by a new pat-
tern of independent and possibly competing chemical industries.
Such independent industries would be easier for single German
states to control or to take over. But if the new trustees were stooges
and stand-ins for the old guard, the accomplishments of this reor-
ganization would be nil because the old tics would remain intact.

We knew that those of the old management who were not in
jail still met secretly but regularly at Frankfurt and other places in
the western zones and planned for the day when they could once
more weave LG. Farben back together. At one time the manager
installed by the Industry Branch to run the big Farben plant at
Hochst reported work stoppages and other production troubles
which he blamed on our German custodian. Upon investigation we
found that the manager himself was attending meetings of the
ousted management in an abandoned store in Frankfurt and was
building a bad production record to discredit the new setup. When
I ordered the manager removed from the plant, the Industry Branch
complained that we had taken away an experienced and indis-
pensable operator. He stayed fired, however, and the plant contin-
ued to operate; but the ex-manager kept turning up at meetings
of the chemical association for Greater Hesse, where the other
German industriahsts accorded him as much respect as formerly.
There was no law to touch him or the association.

In the first year of the reorganization, the initial thirty "independ-
ent units*' in the United States zone were operating on the whole
successfully and some were even producing more than ever before.

igO ALL HONORABLE MEN

in addition to diversifying their output. Since the shortage of trans-
portation would have made it diificuk for these plants to operate
in the old way, as interdependent units, wc felt at least that our
test-pattern was vindicated from the "recovery'' side, however dubi-
ous and experimental it might be as a completed 'Vcform.'*

While we were proceeding during 1946 with the LG. Farben
test, and also negotiating for the passage of a cartel and combine
law, the Finance Division, headed by Jack Bennett of the Treasury
Department, and later by Theodore H. Ball, also of the Treasury,
commenced the reorganization of the big commercial banks. They
ordered the German minister-president of each Land (state) govern-
ment to appoint an independent custodian for the local assets and
business of the branches of the Deutsche, Dresdner, and Commerz
banks. The custodian was to pay no attention to former stockhold-
ers and managers of the banks and he was to give the new institu-
tion a new name having no similarity to the old one. It is interesting
to note, however, that the present letterhead of the *'Hessische Bank"
has under it in dark letters, "formerly Deutsche Bank,'' and the
"formerly** is so small as to be almost illegible.

Later a group corresponding to the Board of Governors of the
Federal Reserve System was set up in the western zones, consist-
ing of one representative from each of the eleven Lander and one
chairman, to operate a "Federal Reserve Bank" known as the Bank
Deutscher Lander.

Jack Bennett and Ted Ball met the same argamtnts that were
put up by the British economic group and by our own Economics
Division against reorganization of the big industrial combines.
Since representatives of the ''Big Six'* banks, and especially of
the "Big Three," had voted the majority of the proxies at stock-
holders' meetings of all the important industrial combines, the
slashing of this function alone was expected to play havoc with
the recovery of industry. Other evils from *Mrastic reorganization"
of the banking function were cited in a running argument that
lasted for over a year.

Both the LG. Farben reorganization and the Finance Division's
banking reorganization provided some contrast with the complete
absence of steps by the Economics Division under the same general

SABOTAGE 191

directives. At first, there were press releases claiming progress in
carrying out directed Ki^iamgcs, On February 2, 1946, a dispatch from
Berlin reported:

Some progress has been made in converting Germany to an
agricultural and light industry economy, said Brigadier General
William H. Draper, Jr., chief of the American Economics Division,
who emphasized that there was general agreement on that plan.

He explained that Germany's future industrial and economic
pattern was being drawn for a population of 66,500,000. On that
basis, he said, the nation will need large imports of food and raw
materials to maintain a minimum standard of living.

General agreement, he continued, had been reached on the
types of German exports— coal, coke, electrical equipment, leather
goods, beer, wines, spirits, toys, musical instruments, textiles and
apparel — to take the place of the heavy industrial products which
formed most of Germany's prewar exports.

General Draper's reference to the "prewar" German exports as

having been predominantly in the fields of heavy industry was
strictly true only of exports in the immediate prewar years while
German heavy industry was being deliberately overbuilt.

The wonder is that neither the British nor the Americans con-
tinued this progress in converting Germany toward a light-industry
economy which General Draper cited in his press statement. If the
economics authorities had steered away from heavy demands on
transportation and oil, and recognized that the coal shortage was
the main factor limiting production, the way would have been
open for General Clay to write his own ticket. With a green light
and a pile of coal for the light industries, and yellow or red lights
for the others as indicated, there was no good reason for failing to
get results. This was the situation when the four powers reached
their Level of Industry Agreement on March 29, 1946.

On April 3, I was forced to leave for the United States to recruit
a stalT for my Decartelization Branch. Practically all the experienced
investigators had returned to the United States following the dead-
lock with the British and the wrangles between the Cartels Divi-
sion and the Economics Divisiota. At Berlin, my "staff'* had dwin-
dled to one man with antitrust experience, Creighton R. Coleman.

192 ALL HONORABLE MEN

In view of the press reports of our troubles at Berlin, people with
cartel experience were refusing to accept jobs with us on the strength
of cabled appeals.

At Washington, I worked at one desk in the Pentagon recruit-
ing for the Decartelizatioii Branch while down the hall in another
office Frederick L. Devercux, General Draper s deputy^ interviewed
candidates for the Industry and Trade and Commerce branches of
the Economics Division. As head of the Industry Branch, Mr.
Devereux selected Colonel Lawrence Wilkinson, who had had some
prior experience in Germany as representative of American banks
which had underwritten loans to Germany. Colonel Wilkinson was
to replace Colonel James Boyd, who was returning to the United
States to become, eventually, director of the Bureau of Mines»

Most of the new men recruited at Washington were permitted
to move their families and household goods to Germany. The regula-
tions were amended at the same time to allow employees already in
Germany to send for their families. Before I flew back to Berlin^ I
saw my own wife and two children aboard an army transport.
The prospects seemed good for a long occupation, during which
arguments over policy could be settled and constructive results
accomplished*

On my return to Berlin on June 24, 1946, after a very difficult
time rounding up some forty lawyers, economists, investigators and
secretaries, most of them with outstanding records in public service,
Creighton Coleman met me with news that was like a sudden blast
of cold air. The replacements Mr. Devereux had selected for the
Industry and Trade and Commerce branches had been coming in
with only the barest briefing on what official policy was supposed
to be. Almost with one accord they were blaming the visibly slow
pace of German recovery on "reforms." They were condemning the
Trading with the Enemy Act, which prevented unrestricted direct
dealings between American and German businessmen; the denazi-
fication program, which they said was denying German industry
the services of the ''best management"; the decartelization program,
which they claimed would ''break up" the efficient industries into
unmanageable little fragments. They assailed the proposal to open
up the patent pools of the German combines for use by all Ger-

SABOTAGE 193

man industries on the ground it would discourage new inventions

and the disclosure of new technology.

Considerably disturbed by the swiftness of these moves, I went
to General Clay to report on the Washington trip. He said that the
decartelization program had lost ground considerably in my ab-
sence. Congress was becoming economy-minded, the spotlight was
turning to "recovery** and "saving the American taxpayers* money.''
In his opinion we would have to move rapidly, because the pressure
to do nothing at all might be expected to increase. Several
visitors from the United States, including some congressmen, had
gone home with the impression that the decartelization program
was a combination of the Morgcnthau Plan for deindustrializing
Germany and a scheme to break up the remaining industries into
thousands of unrelated plants.

It did not take long after I left General Clay*s office to discover
at least part of the reason for the strange tales being carried back
to the United States. That very evening I was asked to attend a
dinner sponsored by General Draper and the Economics Division
for a group of six visiting American industrialists who had come
to Europe for a meeting of the International Chamber of Commerce
at Paris. They were just rounding out two days spent at Berlin with
the Economics Division in a "survey of the economic situation."
After dinner they were to hear brief summaries from two branches
which had not been heard from in the earlier discussions.

To preface the two summaries. General Draper explained his view
that the great and immediate need was recovery, to save the Ameri-
can taxpayers' money. Of the two less important branches of his
division, one, Restitution, was necessary to correct certain evils of
the Nazi regime, regardless of what the cost might be. The restitu-
tion of looted property was not expected to retard recovery unduly.
The other branch, Decartelization, was concerned with certain
changes that might have to be made in the future although for the
present the cartels had been *'put out of action" by the war. At the
end of the proceedings, as the guests twisted in their chairs and
finished their cigars, I had five minutes to present a picture of the
aims and program of my branch.

The six distinguished guests on this occasion included Philip D.

194 HONORABLE MEN

Reed, chairman of the board of General Electric and head of the
American delegation to the International Chamber of Commerce;
Robert R. Wason, president, and Robert Gaylord, chairman of the
executive committee, of the National Association of Manufacturers;
John Abbink, chairman of the National Foreign Trade Council;
Randolph Burgess, vice chairman of the National City Bank of
New York; and Benjamin H. Beckhart, economist of the Chase
National Bank. Several of the visitors were friendly as the dinner
broke up, said the National Association of Manufacturers was of
course on record as opposing cartels, but they were not sure that
"trust busting** on a large scale was called for in Germany **at the
present time,'* and it might do a great deal of harm. I had spent
my five minutes describing how a body of less than a hundred
men had been able to deliver the German economy to the Na^Js
bound hand and foot, and how we proposed to establish a less
centralized control over German industry. Yet it was clear that
the net impression of the guests at the end of two days was a stereo-
typed impression that we were *'trust busting'' indiscriminately
among struggling businessmen who were already prostrated by
the war.

This was no isolated case. Throughout the rest of the summer,
when visiting groups arrived from the United States, we found
again and again that the Dccartelization Branch was allocated a
brief period of time toward the end of each program to make a
statement, and always after an adverse context had been built up
by other speakers from the Economics Division. The previous
speakers, nominally allocated ten or fifteen minutes, often ran on
for twenty or twenty-five; but invariably General Draper, or
whichever of his deputies happened to be in charge of the meeting,
would introduce the subject of dccartelization as if it were an after-
thought, emphasize that it was not important at the present time,
and heavily underscore the point that the talk would be i/ery short.

We decided to direct our attention first toward clearing up the
four-power negotiations for a decartcUzation law. The American
position had been coniuscd on this msLtttT ever since the squabbles
of October and November 1945. If we were being misunderstood,
our cue was to get all issues clear and our position straight on the

SABOTAGE 195

record as fast as possible. Once we knew the exact points of dif-
ference with the French, British and Russians, we could go to
General Clay with concrete proposals for a settlement of the stale-
mate.

During July we had an uphill fight in the four-power committee
to define the points of agreement and disagreement. The Soviet
delegation occupied the chair in each committee and directorate for
that month, under the rotation system. Our chairman was Sergei
Bessonov, who had served a short prison term after the Moscow
trials in 1938, and who was proceeding carefully and cautiously on
each point. It took a little over four weeks of patient statement and
restatement of the American position to find whether or not the
differences with the others were fundamental.

At our second meeting in August, we at last had three-way agree-
ment on a draft of a law which in one section defined the kinds
of cartel and monopoly practices which were to be prohibited. la
another SGction^ the draft law set out three ways of measuring "large
size" in an industrial combine: by percentage of control over the
industry, by total vahie of its plants and other assets, and by total
number of employees- It was proposed that a combine should be
permitted to control a greater percentage of an industrVj or a greater
^ggi'cgate of properties^ or to employ a greater number of workers
only if a four-power commission or the Control Council found that
the exemption w^as necessary.

Though the British member of the committee, Brigadier Caton
C. Oxborrow% still had to disagree with three points, we had unani-
mous agreement on a statement of those points. The same agree-
ment on the exact points in dispute prevailed in the Economic
Directorate, where our paper had to be approved before going to
the Co-ordinating Committee. The British could not agree to any
explicit definition or prohibition of economic practices fostering
monopoly. They could not agree to adopt any standard of size that
wouid raise a legal presumption of "concentration.** They could
not agree to give a four-power agency the authority to judge cases
and issue binding decisions, but only to make recommendations to
the commanders of the respective zones.

On Saturday, August 3, 1946, before the division directors' meet-

196

ALL HONORABLE MEN

ing, I went to General Clay's office to report the agreement with
the British on points in dispute and with the French and Russians
on the text of a law. I took with me a three-page summary of a
program to be carried out in our own zone while we went ahead
and worked for four-power agreement. This proposal was based on
a statement of policy prepared at Washington by the Interdepart-
mental Committee on Cartels and Monopolies and approved by the
President's Executive Committee on Economic Foreign Policy. My
memorandum pointed out that of the eighty-five outstanding
German industrial combines, twenty-seven had their head office or
principal place of business in our zone. These could be reorganized
from the top down, while individual plant groups belonging to
combines with head offices in other zones could in most cases be
treated as independent enterprises and severed from their "foreign"
parent corporations.

The specific steps of the program suggested by the President's
Executive Committee were as follows:

a. Elimination of Holding Companies, Wherever companies
have been held together by stock ownership, all top holding com-
panies and all intermediate concerns which are merely holding
companies should be dissolved. All operating companies should be
required to divest themselves of any securities held in other com-
panies, and should be confined to ownership and operation of
physical plants. Future stock acquisitions by such concerns should
be forbidden.

Mergers of any parts of divested or dissolved companies should
be prohibited unless permission is granted after an affirmative
showing of public interest. Transfers or purchases of physical assets
among remaining companies should be similarly prohibited, to
prevent the eflect o£ mergers through transfers of assets.

b. Elimination of Interlocking Directorates. To prevent combines
from being held together through common top personnel, all
officers and directors of companies included in prohibited com-
bines should be required to surrender all their offices and director-
ships except those in the one company in which they are principally
concerned.

c. Elimination of Contractual Ties, Contractual and intercom-
pany service arrangements having the eflect of maintaining com-

SABOTAGE I97

mon management should be canceled. Specifically, arrangements

for performance of central office services, central accounting, central
finance, interchange of personnel, exclusive agencies, and prefer-
ential or exclusive trading rights, should be prohibited.

d. Elimination of Patent Restrictions, Enterprises which have
been members or parts of prohibited combines should be required
to grant nondiscriminatory licenses to all applicants under patents
which they now hold and under licenses which give them rights
to sublicense. They should surrender exclusive or preferential
rights under licenses granted by other enterprises. They should be
required, for a considerable period of transition, to make available
to ail comers, on nondiscriminatory terms, any technology or
patent rights which they make available to other concerns which
have been part of the same combine.

c. Elimination of Large Single Enterprises. Single operating
companies which, standing alone, still are so large as to fall within
the "mandatory" size standards set out in the draft law, should be
separated into technically and economically operable independent
units. Parts of a company should be separated from one another if
they are in unrelated industries, if they have had a separate cor-
porate existence within the past ten years, if they were acquired
under "Aryanization" or other National Socialist economic policies,
or if they are so separated from one another physically and tech-
nologically that they do not in fact have a common operating
management.

After reading this paper and discussing It, General Clay wrote
across the top, "Approved in principle — LDC* He then told me
to inform the British, French and Russian representatives at our
next meeting that, pending four-power agreement, General Clay
was going to issue a decarteUzation law for the United States zone.
If any of the others wanted to follow suit, we would be glad to
co-operate with them in enforcement. Later, at the directors* meet-
ing, General Clay repeated his instructions to me to make them a
matter of record.

It was my hope, though not necessarily my expectation, that this
restatement of the way in which we proposed to approach the prob-
lem of economic decentralization might put a stop to some of the
misunderstanding of our purposes. Much of our opposition from

19b ALL HONORABLE MEN

old hands and newcomers in the Economics Division seemed to

come from ignorance of the ofScial policies and of the many find-
ings that lay behind those policies. If we at least had a military
government law on the subject, possibly the arguments could be
confined to the issues and findings in specific cases.

Getting the law issued was another matter. First, Ambassador
Robert D. Murphy, the Political Adviser, questioned General Clay*s
decision to act without the agreement of the British. General Clay
replied with a note saying that if the Americans, French and Rus-
sians reorganized the combines and broke up the restraints of trade
and monopoly practices in their zones, and left the British alone
with their cartels, that in itself would to some extent end the
centralized controls over German industry* In addition, it might
force the British to act, he said. Actually, that is what did happen
in the case of the banks, some months later, when the British found
that their opposition was not going to delay the Finance Division's
decentralization of the banks in our zone.

We prepared a draft law, together with an appendix listing those
of the eighty-five major combines which had properties and assets in
the United States zone. Within a week after General Clay gave his
order we had circulated the draft, together with the listing of the
combines, to all interested branches of the Economics Division. In
all cases where other branches of the Economics Division did not
concur in the listing of a given combine, we discussed the particular
case with the branch or section chief concerned and, in the end,
either got concurrence or else dropped the combine from our list
in order to eliminate delays in getting the law to General Clay for
signature. After nearly a month of delays caused by objections from
the Economics Division and from some other divisions which
wanted special exemptions for German activities under their con-
trol, the law was ready to be presented to General Clay. All that was
needed was the signature of the director of the Economics Division.

In the first part of September 1946, before signing the draft of
the law General Draper returned briefly to the United States for
discussions of the proposed bizonal merger agreement with the
British. Upon his return to Berlin on the evening of Friday,
September 13, General Draper called me from Tempelhof, just after

SABOTAGE I99

his plane arrived. He said that he had talked about the decarteliza-

tion law with William L. Clayton, then Assistant Secretary of State
for Economic Affairs. These talks, he said, had revealed a shift of
position at Washington on the subject of a ^'mandatory" law. Also,
there was some doubt in the State Department about going ahead
without the British,

The following morning, Saturday, September 14, 1946, General
Clay called me to his office. Among other things he asked how we
were coming with the decartelization law for the United States
zone. He said he had instructed me to prepare such a law more than
a month before. How long did it take to change a few words?
Actually it took from August 3, T946 to February 12, 1947 to push
these few words through the machinery of military staff procedure
that General Clay had set up, but now I merely reported my tele-
phone conversation of the preceding evening. General Draper
felt that in view of the possible shift of policy in Washington, we
should hold up the issuance of the law until we had tried once more
to get the French and Russians, as well as the British, to agree to
a law instead of proceeding unilaterally in our zone. General Ciay*s
face clouded up and his speech became even more controlled and
precise than usual. He stated that his instructions from Washington
had been that the law must be "mandatory." He would not alter his
position unless Washington put the order in writing. If he did
receive a written order he would make a vigorous protest against
the State Department's shifting of the American position while we
were in the midst of dealing with the situation that had arisen under
the original policy. He went on to say that he was not certain that
someone from the Economics Division had not done a certain
am.ount of selling of the "nonmandatory" position in Washington.

I agreed that the position which General Draper had reported the
previous evening was precisely the position that the Economics
Division had been trying to sell since October 1945, when the
confusing issue of a "nonmandatory" law as against a ''mandatory"
law first came up. I repeated again, as on several earlier occasions,
that I was finding my double position as a "division director" and a
branch chief intolerable, since I knew what the official policy was
and had been trying to carry it out. He asked me to bring up the

200

ALL HONORABLE MEN

question of issuing the law later that morning at the division
directors* meeting so that he could make his position once more
perfectly clear. So, at the meeting I said with a straight face that
recent developments had led to some doubt about whether we
should go ahead with the unilateral law for our zone alone; where-
upon, with General Draper looking on, General Clay laced into me
for delaying after he had given his specific instructions. This
slightly conspiratorial way of saving the surface was disturbing.

Meanwhile there were rumors from Washington of a possible
Senate investigation of military government. Several officers re-
turning from Germany had complained to the former "Truman
Committee/* now headed by Senator Kiigore, that important
policies were not being carried out. The rising tension that followed
the rumors had no visible effect, however, on the Economics
Division's "briefings" of visiting delegations from the United
States. What at first had appeared as ofl-the-cuff statements by men
new to their jobs began to look more like an established routine.
The issue over such "briefings" reached a climax after a session
with a group of visiting editors from the United States, held in the
Economics building on October 9, 1946. Peter V. Martin, deputy
director of the Economics Division, was in charge of the meeting.
He introduced Colonel Wilkinson, as chief of the Industry Branch,
to make a statement. Colonel Wilkinson repeated his favorite theme
that the denazification and the decartelization programs, which
he often confused with one another, were responsible for delaying
German economic recovery.

This time Colonel Wilkinson waxed poetic. He said that in trying
both to help Germany recover and to get rid of Nazi management
and the centralized controls of the cartels and combines, we were
"pulling a man up by the hand while we kept one foot on his neck."
He went on to assert that> "as everyone knows,'* in an economy of
scarcity there must be highly centralized controls "to avoid wastage
of materials and manpower.** Only a rich country, like the United
States, could afford to waste materials, manpower, and plant ca-
pacity on an "antitrust" policy.

At least we were getting close to a clear statement of how the
new crop of administrators viewed the German economy. I thought

SABOTAGE

201

of the intercepted telephone conversation, reported two weeks
earlier, between a German official at Stuttgart and one at Munich.
They were agreeing on a new method of reporting production
figures so as to give a "more pessimistic picture,'* and thereby save
plants from being taken as reparations. Now we were being told
that the men who had had undisputed control of the German
economy even under the Weimar Republic, and had run it so far
olT the road that only a war and an organized looting program
could save it, were "indispensable." Shades of "Great Gustav" and
the trouble Albert Speer had getting the Krupps and others to bend
to the needs of their own war program!

On the morning of October 10 I went to General Clay, told
him about the "briefing" o£ the editors and publishers, and asked
to have the Decartelization Branch removed from the Economics
Division and restored to its original status as a functional division
of military government. I pointed out that we could not hope to
see our program represented accurately to the outside world so long
as the Economics Division controlled what was said about it. If this
routine occurred once more I would have to fight back regardless
of how spectacular the "briefing" might become. I could no longer
remain silent and dutifully "subordinate** if such statements were
made in my presence.

We had to expect a swing of the pendulum, General Clay replied.
It might have to swing even further away from the original ob-
jectives of the occupation before any backswing could be hoped for.
He asked me to stay in the Economics Division while he studied
the matter. With a senatorial investigation possibly in the offing
he did not want to shift a major unit in such a way as to imply
criticism of the Economics Division. In the meantime, to deal with
the immediate issue, he called in his secretary and dictated this
memorandum to General Draper:

It has come to my attention that at a meeting of editors visiting
from the United States, statements were made to the effect that
the revival of economy in Germany was made more difficult (a) by
denazification and (b) by decartelization, thereby indicating that
two major policy objectives of the United States were at least in
part responsible for economic conditions in Germany today.

202

ALL HONORABLE MEN

As you know, I have never attempted to restrict anyone's per-
sonal views or the expression, of these views as personal views.
However, in officially presenting OMGUS policy to representatives
from the United States, it does not seem quite fair to me to express
personal views.

The extent to which denarification has affected the revival of

German economy is a matter of opinion. I am still of the view
which I held from the beginning that the denazification program
has affected the labor groups and lesser employees so favorably as
to have a beneficial rather than a harmful effect. I am sure that
the failure to have denazified industry would have resulted in a
batde between management and labor which would have been
disastrous to all of our objectives. I can not agree or accept a
conclusion that denazification has had a harmful effect on the
German economy.

The same applies equally to decartelization. Actually, our de-
cartelization program has not progressed sufficiently as yet to have
any real effect on the German economy, as the physical condition
of industry has in itself prevented cartel actions of any magnitude
during the past year and a half. I am convinced, however, that
the re-creation of small businesses in Germany will do more to
revive its economy and to provide a far more satisfied population
than in the regrowth of cartels which, in many instances with the
government support, were able to dictate their own terms to their
customers.

It seems to me that a lukewarm attitude toward decartelization
is certain to develop if we begin to preach that decartelization will
stifle German economy. As you know, many sincere people believe
that the foundation of free enterprise in America rests in small
business, particularly where ownership and management arc com-
bined to work closely with employees. While I am not attempting
to carry a brief for small business against big business in the United
States, I am certain that the revival of democracy in Germany is
dependent on our ability to develop an economy which is not
controlled by a handful of banks and holding companies.

I would appreciate it if you would make this policy fully under-
stood as representing the official view of OMGUS.

The following Saturday, October 12, 1946, at the meeting of
division directors. General Clay abandoned his usual procedure of

SABOTAGE 203

calling for progress reports from all directors and instead invited

"gripes" or criticisms from all of us in turn as we sat around the
table. General Draper, whose turn came third on the list, stated that
his first "gripe" was decartelization. He singled out the policy in-
structions from the State Department that had to do with limiting
the '*size** of the chains of companies kept under one management.
*'Germany in the accredited world markets, which it is going to
have to enter, has got to have the opportunity to have efficient in-
dustrial organization; and where that requires sizable industry or
plants, that should be permitted,*' he said.

General Clay had previously said that he would withhold com-
ment on particular complaints until everyone had been heard. But
at this point he interrupted the proceedings. With his black eyes
flashing, he said: "I don't believe that we can accomplish our purpose
without striking out the large corporations in Germany. The con-
duct of those existing in the past condemns them- I personally am
fully in sympathy with decartelization based on size until we have
destroyed conditions which did exist in Germany, accompanied bv
an antitrust law that will prevent the most harmful eflects of car-
tclization." He went on to remind General Draper of his duty as
an officer, regardless of his personal opinions, to adhere strictly to
policies which were fixed by official statements from Washington.

Clearly we were talking more and more at cross-purposes with
the critics who spoke always of our "breaking up" industries, try-
ing to establish "small business," and setting up a "wasteful and
inefficient" German economic system* Actually, men like General
Draper were right when they said the war had "broken up" the
combines, in the sense that the operation of their plants was now
decentralized. With Germany divided into four zones and Berlin
an island one hundred and twenty-five miles inside the Soviet zone,
how could the management of Siemens & Halske at Berlin really
supervise the work of hundreds of subsidiary corporations located
all over Germany ? How could men in the Haniel family's top hold-
ing company, Good Hope, at Niirnberg, really oversee the operations
of steel plants at Oberhausen in the Ruhr, coal mines near Dort-
mund, river shipping companies on the Rhine, and machinery and
diesel engine works in Bavaria? We were not interfering with

204 HONORABLE MEN

production. We simply wanted to make the operation o£ the
separate plants legally independent, so that the old management
would not be able later to pull everything together on the old basis
by a simple stroke of a pen.

The "concentration of power" we were talking about was a form
of over-all economic planning, carried on privately, out of sight, by
the kind of men who had made up the "Himmler Circle." We
were not talking about the way even "mass production" business
is supposed to be carried on in the United States. We decided to
do what we could to put the discussion in a new light, with attention
focused on German business as we had found it. We put part of our
growing staff to work on a summary of all that we had learned
about Germany's cartels and combines.

CHAPTER l6

The Christmas-tree Economy

WE wanted to lay down side by side our picture of the cartel and
combine-ridden German system, and the guidelines Washington
had provided to help military government deal with the problem.
Beside these, on the table, we wanted to lay the new crop of ideas
about the need for keeping the "old experienced management," the
need for centralizing management, and the other conditions that
some people were now considering essential to Germany recovery.
How did the new ideas square with actual conditions in Germany ?
Where the Washington policies were not being followed, were the
substitutes actually contributing to a more orderly and speedy
recovery, or to security against future German troublemaking? Since
some of our colleagues at Berlin found the official policies un-
workable, what kind of economic ideas and developments did they
find acceptable? What were they doing?

We began to pay closer attention to some of the day-to-day prob-
lems that came up, and the action that the Economics Division took
to meet them. Were there some difficulties which Washington had
not foreseen and which were forcing military government to
improvise ?

The Netherlands government, in a letter dated July lo, 1946,
requested military government to allow a German, Dr. Alexander
Kreuter, to visit The Hague for three weeks to take part in dis-
cussions of economic and financial problems involving important
interests of the Netherlands. The letter said that Dr. Kreuter had
been a trustee of various interests of the Netherlands government
since 1921 and had carried out his duties with great care and loyalty.
Such a request had to be passed apon by the Combined Travel Board

206

ALL HONORABLE MEN

made up of military government representatives of the United
States, Britain and France to determine whether the request would
jeopardize any of the goals of the occupation. The Combined Travel
Board asked the opinion of the Economics Division, because Dr.
Kreuter was serving as a German consultant in the office of the
director of the division. The Economics Division found no reason
for denying the request of the Netherlands government, and the
Board issued the necessary exit permit.

Though the purpose of Dr. Kreuter *s visit was to discuss both
economic and financial problems, the Finance Division did not
learn of the trip until after Dr. Kreuter had left. Jack Bennett,
director of the Finance Division, had previously raised a question
about the military government employment of Dr, Kreuter, who
was listed in the records of the SS as a contributing member.
Dr. Kreuter claimed his connection with the storm trooper organiza-
tion had been purely nominal and for business reasons only. Bennett
asked the Visitors' Bureau to put a stop order on further travel
abroad by this particular consultant until his record had been
cleared up.

During the German occupation of western Europe, Dr. Kreuter
had been busy not only as a trustee of various Dutch properties in
Germany and the occupied countries, but had operated with con-
siderable latitude throughout Germany and German-occupied ter-
ritory on other financial affairs. He had been manager of the
German branch of the French collaborationist bank, Worms et Cie.
He had also been for many years head of the Deutsche Kredit-
Sicherung K.G., or German Credit and Investment Corporation,
which had been set up in the 1920's with the help of a loan of ten
million dollars from American investors, floated through Dillon,
Read & Company. He had likewise headed the corresponding
American firm, the German Credit and Investment Corporation of
New Jersey. Another officer of the latter firm had been the Secre-
tary-Treasurer of Dillon, Read, William H. Draper, Jr., whom
Dr. Kreuter was now serving as a consultant.

Dr- Kreuter had been very busy during the war. In the spring
of 1942, when persons in the occupied territories still considered a
German victory likely, a group representing French, German and

THE CHRISTMAS-TREE ECONOMY 20y

American business interests, operating through Vichy in un-
occupied France, had formed a syndicate to engage in banking
operations in German-occupied Europe. This syndicate, the Societc
de Credit Intercontinental, combined American, French and Ger-
man capital and banking personnel in Europe.

The French group, headed by the Banque de Tlndochine, in-
cluded the investment bank of the Schneider-Creusot armaments
interests and the French insurance syndicate. The American group
included the French subsidaries of Ford, the International Business
Machines Corporation, the Corn Products Refining Company and
some others. The German group was headed by Dr. Kreuter of the
Deutsche Kredit-Sicherung K.G.

According to the plans, the chairman of the board of directors
was to be General Count Adalbert de Chambrun, father of Count
Rene de Chambrun, Laval's son-in-law. The board of managers
was to include, in addition to Dr. Kreuter: Seymour Weller, nephew
of Clarence Dillon, who had been acting as Dillon, Read's French
representative; the Marquis Gabriel de Mun, former manager of
the Paris office of the National City Bank of New York; and several
representatives of the French banking and armaments firms. The
legal department was to be managed by Francois Monahan, formerly
with the Dulles law firm, Sullivan & Cromwell, and a business as-
sociate of Count Rene de Chambrun.

The rather ambitious plans of this new banking syndicate had
been considerably curtailed after a storm of protest when a United
Press correspondent in Vichy cabled back a description of the
project in a dispatch to his papers in the United States.

A few weeks after Dr. Kreuter returned from his trip of July
1946 to The Hague another request was made for an exit permit.
This time the request was turned down by the Visitors* Bureau. In
a few days a trio of Dutch officials appeared at the office of Ted Ball,
deputy director of the Finance Division, to ask why the exit permit
had been bJocked. They were told of the unanswered questions about
Dr. Kreuter*s SS contributions and other collaborationist activities-
The three men left, but were back the next day to visit Jack Bennett
on the same matter. Ball and two of his staff joined in the discussion.
The Dutch officials wanted to know first what was the relation be-

208

ALL HONORABLE MEN

tween the Finance Division and the Economics Division. Tlien

they pointed out to Bennett and Ball that there vi^ere also certain
American interests involved in the matters being discussed in the
Netherlands.

Bennett replied that the Finance Division and the Economics
Division were separate and co-ordinate organizations each report-
ing directly to General Clay. He went on to tell the gentlemen
from the Netherlands that all of the military government were
representatives of the government of the United States, rather than
of particular "American interests.'* He cited the questions about
Dr. Kreuter*s record and suggested that they report them to the
Netherlands government. If the Netherlands government wanted
to renew the request after being informed of the reasons why it had
been turned down, the question could be discussed further. The
request was never renewed.

As we counted the number of such vaguely defined projects that
occupied much of the daily routine, the Economics Division
showed few signs of having a consistent plan for carrying out the
objectives of the occupation* Instead there was a great deal of
improvisation that followed the formula, "Herc*s good old Henry!
What can we do for Henry and what can Henry do for us?"

On June 30, 1946, an announcement had been made at Berlin
that certain restrictions on travel into Germany were being relaxed.
Selected representatives of American firms which owned factories
and property in Germany would be allowed to visit Germany for
limited periods to make an inspection, though not to engage in
direct business transactions. Throughout the war, an organization
known as the Foreign Property Holders' Protective Association,
representing American firms with industrial plants in Germany,
Japan and enemy-occupied territory, had kept a delegation at
Washington to confer with the army s Civil Affairs Division on the
treatment of their overseas interests. The new rule of June 30 was
in line with the recommendation of this and like groups. The
Economics Division complied with the new rule by setting up a
special ofBce under a lawyer named Frank Fritts, whose job was to
expedite clearances for such visits and to see that accommodations
were made available.

THE CHRISTMAS-TREE ECONOMY 209

In the absence of an agreed policy the trouble in admitting some
businessmen but excluding others was not that those who came in
would be crooks, but that the economic design that emerged in
Germany might be full of improvisations.

One of the earUest men to come in on an inspection trip was
Mn Gordon Kern, vice president of the International Telephone
and Telegraph Corporation, owner of a group o£ corporations
which together formed the third largest electrical combine in Ger-
many, ranking next to Siemens and A.E.G. The IT. & T. group in-
cluded principally the Standard Elcktrizitats-Gesellschaft, Mix &
Genest A.G., and C. Lorenz A,G. The chairman of the board in
all three was Gerhardt A. Westrick, von Ribbentrop's "unsuccess-
ful" propagandist. He had protected the companies from seizure
by German authorities by turning the top management over to
SS leaders and other Nazi Party members. These men had made
sure that all the companies contributed regularly to the Himmler
Fund through the confidential account **S*' maintained by Baron
von Schroder at Cologne.

As early as 1938, with the approval of the American parent com-
pany in New York, one of the German subsidiaries, C. Lorenz, had
acquired a 25 per cent Interest in the Focke-Wulf military aircraft
company. Throughout 1938 and 1939, the German company laid out
large sums in plant expansion to take on advance orders for arma-
ments from the Nazi government. Before the w^ar actually started,
Colonel Sosthenes Behn, then head of the New York corporation,
had given Westrick general power of attorney to control the
American shares in the German subsidiaries. Before the fall of
France, Westrick had been given the additional power of attorney
to take control of other LT. & T. companies in the rest of Europe
wherever German troops should move in.

Though Mr. Kern came in at first on a thirty-day permit, he
stayed on with extensions from month to month. His activities
rapidly broadened beyond ^'inspection" of the condition of the
company's properties. Before long he had the Lorenz factory operat-
ing on a contract with the Army Signal Corps to supply repeater
tubes for the long-distance telephone circuits of the American zone.
When Washington cabled a query about the length of Mr. Kern*s

210

ALL HONORABLE MEN

Stay, the reply was that he was managing a plant supplying services
considered essential to the occupation forces. Somewhat later, his
activities broadened still further. We received from the postal censor-
ship a copy of a letter written by a German patent lawyer in West-
phalia to the patent attorney of an LT. & T. subsidiary in New York.
According to the letter, Kern had promised to arrange military per-
mission for the German lawyer to go to Switzerland to discuss the
*'patent situation" with the LT. & T. subsidiary in Switzerland.
This much was hearsay. But a few days later a request sponsored by
Mr. Kern went to the Combined Travel Board asking permission
for the Westphalian attorney, who was described as old and in ill
health, to make a brief visit to Switzerland to recuperate. At this
point, representatives of the Decartelization Branch and the
Finance Division demanded that Mr. Kern's permit to remain in
Germany be canceled; but the Economics Division decided instead
merely to caution him about observing the rules.

We objected not only because an American firm was ''doing
business'* on a preferential basis, while competitors were excluded
— the presence of competitors is often better than police supervision
and censorship — but also because under the Potsdam Agreement,
radio and electronic equipment manufacture v/as to be eliminated
from Germany as soon as German exports of other materials were
enough to pay for imports of this kind of product. To make
complicated items of these types, it is not only necessary for the
factory itself to be revived, but a number of "feeder** industries,
tool and die shops, and other satellites also have to be rebuilt. Many
of these require expensive raw-material imports. Granted that the
Signal Corps needed repeater tubes, was this way of acquiring them
part of a coherent and well-conceived program? Or had the his-
torical accident of an American firm's interest contributed to the
revival of this plant in preference to glass factories, leather works,
or other light industries?

Preferences in reopening plants were not the only visible signs
of "planless planning.** We had been hearing a lot about the
superior efficiency and technological skill of the ^Sveli-estabiished"
firms and their experienced management. Early in 1946 Genera!
Clay had insisted that German chemists must be put to work to

THE CHRISTMAS-TREE ECONOMY

211

produce penicillin for the German public-health services in order
to cut down on expensive imports. The Industry Branch quickly
picked the biggest chemical plant in our zone, the I.G. Farben
works at Hochst. They turned over to the Farben chemists all
the available descriptions of American penicillin production
methods.

After six months the Hochst chemists were still fumbling around.

General Clay was becoming more and more acid in his comments,
and the Industry Branch sent a technical team to investigate the
delays. They came back with a report that new funds would be
needed to build extensions to the Hochst plant before quantity
manufacture of penicillin could get under way. The Industry
Branch then asked me, as I.G. Farben control officer, to negotiate
a four-power agreement that would allow me to turn over the
equivalent of a half million dollars out of the I.G. Farben funds
for preliminary plant expansions, with the expectation of turning
over about ten million more before the project was finished.

At this point we decided to make some inquiries of our own. We
were already having trouble with the French control officer,
Colonel J. J. Franck. He was insisting that T should agree to turn
over twenty million dollars in Farben funds for rebuilding the
synthetic rubber facilities at Ludwigshafen, even before any funda-
mental agreements had been reached on plans to prevent I.G. Farben
from being woven back together. If there were any reasonable
alternatives it was hardly the time to open the dikes and start pour-
ing out the equivalent of two hundred million dollars which I held
in impounded funds.

What we found was that the German managers at Hochst, be-
sides failing to find the answers to the technical problems, were
sitting on the American information and refusing to allow tech-
nicians from other German chemical companies to see it. The
Hochst managers wanted to keep the information as a "trade
secret.** They had also demanded from the Industry Branch the
assurance that, if they did succeed in producing penicillin^ in
quantity, they would be given a monopoly of German production.
In the meantime, in order to establish themselves in the market,
they even wanted to sell American-made penicillin under the

212

ALL HONORABLE MEN

Hochst label. Otherwise, they said, the penicillin project would

not be a commercially attractive venture.

It was not nearly so strange to us that the German management
should have looked at the operation in this way, as that these facts,
which we found confirmed in the report of the Industry Branch,
should have been accepted without comment by military govern-
ment officers. I refused to release any funds under these circum-
stances and Colonel Wilkinson took the issue to General Clay*
General Clay, too, challenged me, you were a German business-
man, wouldn't you do the same thing?" However, he did not order
me to release any funds.

The penicillin problem was still unsolved early in September
1946 when a Lieutenant Colonel W, E. Ryan came to my office.
He had just been assigned, he said, to the Industry Branch. He had
been connected with the Heyden Chemical Corporation in the
United States. The president of Heyden, Mr. Bernard R. Armour,
he said, was interested in acquiring some I.G. Farben plants in
Germany, including the Hochst plant, to add to the chain of chemi-
cal properties which his group had been buying in the United
States. These latter had included the purchase from the Alien
Property Custodian of the controlling interests in American Potash
and Chemical Corporation, the Schering Corporation, the Ore
and Chemical Corporation, and the Pembroke Chemical Cor-
poration, all of which had been American subsidiaries of German
firms.

Colonel Ryan had with him copies of correspondence between

Mr, Armour and General Draper covering a proposed arrangement
under which the Heyden firm would take charge of the project
and would supply its penicillin expert. Dr. Gregory Stragncll,
formerly of the German Schering firm, to supervise the work at
Hochst.

The Heyden Chemical Corporation itself had been founded in
1925 as an American subsidiary of the Chemlsche Fabrik von
Heyden A.G. of Radebeul, near Dresden, Germany. The German
interest in the company had been seized by the Alien Property
Custodian and the Armour group was now in control under an
arrangement worked out with the Custodian. The Treasury De-

THE CHRISTMAS-TREE ECONOMY 213

partment, as well as the Alien Property Litigation Section of the
Department of Justice, had been vigorously opposed to the Cus-
todian's disposal of the Heyden and Schering properties, es-
pecially because men like Dr* Stragnell, who had had close prcwar
connections with Schering A.G. of Berlin, were to be active in the
future management of the American firms. Our Industry Branch,
however, insisted that it was necessary for them to deal with those
who were best qualified to do the job, regardless of other con-
siderations.

Negotiations with the Heyden firm continued over our objections

until the middle of November, when General Draper received a
letter from Charles P. Kindlebergcr, chief of the Division of Ger-
man and Austrian Economic Ajffairs in the State Department. I^i-
cluded with the letter was a Treasury Department memorandum
summarizing the objections to the establishment of new links be-
tween the Heyden group in the United States and firms in Germany.

Mr. Kindlebergcr said, '1 am assured that Treasury docs not
propose to do anything about it. However, I am not unaware that
memoranda such as this have a habit of well-timed leakage to cer-
tain columnists." General Draper wrote back that he **had gotten
some hint concerning this general picture from one of our peopk
here," and added that "entirely aside from these considerations? it
would be obviously preferable to have one of the real leaders in the
American chemical field and in penicillin furnish the supervision
and know-how, provided the question of necessary capital invest-
ment in dollars can be satisfactorily arranged.**

Thereupon, a new proposal was made to have the American firm
of Merck h Company undertake the job, using the faciUties of the
German firm, E. Merck, of Darmstadt. This arrangement, in turn,
would require an agreement by the Attorney General to modify ^
decree, entered by a Federal District Court in an antitrust case,
under which further business arrangements between the American
and German Merck firms had been forbidden. The struggle over
penicillin went on and on for many more months.

Relying on the "leaders of the industry" was one of the formulas
of the Economics Division. In the fall of 1946, George Allen? of
the Reconstruction Finance Corporation, visited Germany to vvork

214

ALL HONORABLE MEN

out an arrangement under which loans could be extended to help
stimulate production. The Economics Division for some time had
been reporting that unless new capital investments and loans were
poured in> German recovery would take a very long time. At first,
loans and investments from private sources were out of the question
because of the uncertainties of returns. To fill the gap, it was pro-
posed at first to extend dollar credits from the RFC through two
RFC subsidiaries, the U. S. Commercial Company and the Com-
modity Credit Corporation. These credits would be used to buy
raw materials in the United States, ship them to Germany, have
them processed in German factories and then sold in export markets.
Part of the proceeds of the exports would be used to pay off the
RFC loans* Once this business had been established with govern-
ment money, it was expected that private capital could be attracted
to finance this trad^.

General Clay went to Washington to complete the arrangements,
following George Allen's visit to Berlin. Shortly after he arrived in
Washington for the discussions, General Clay became concerned
over the possibility of unfavorable publicity and other repercussions
if materials should be allocated to German firms which had had
prominent roles in the "cartel'* system. He sent an urgent cable back
to Berlin. The Economics Division should "at once take steps to
designate objectionable firms.'* Under no circumstances should
these receive imported materials until they had been reorganized
into groups of econonnically independent companies.

This cable fell as a bombshell at Berlin, because the Trade and
Commerce Branch had been building its export program around
the "recognized** products of the "well-established" firms, including
Siemens & Halske, Robert Bosch, the I.T. k T. subsidiaries, the
Wintershall potash combine, the Friedrich Flick steel plants, and
others. They had been instructed months before not to turn over
export business to firms that were likely to lose their plants in the
reparations program, and the Industry Branch had listed plants of
many independent firms as reparations.

It gave us very little satisfaction to say, "I told you so " Nearly
a year before, the Economics Division had rejected our proposal to
keep plants of independent firms off the reparations list as far as

THE CHRISTMAS-TREE ECONOMY 21$

possible, and to start first with plants that could be separated from
the big combines. At that time we had been told that if we "decar-
telized" the big combines properly, there would be no difference
between the plants of a big combine and the plants of an inde-
pendent firm. Now General Clay's cable from Washington de-
manded immediate steps to reorganize the "cartel*' firms whose
plant facilities were needed in the export program*

We immediately drafted a proposal showing how the plant groups
that had belonged to the "objectionable" combines could be made
economically independent* The Trade and Commerce Branch chose
instead to argue that General Clay's order would bring the export-
import program to a standstill. It was not until March 13, 1947, that
our "staff study" outlining the reorganization procedure was ap-
proved by the Economics Division and sent to General Clay's chief
of staff.

General Clay never signed the proposed order* Gradually the
restrictions against allocations of raw materials to "cartelized" firms
were relaxed without a formal order, "in the interest of promoting
the export-import program."

Relaxations of policies sometimes extended even to "reform"
measures which had already been carried out. For example, under
Control Council Law No. 9, requiring the dissolution of the LG.
Farben combine, a four-power agreement eliminated the use of
characteristic *'I.G." trade-marks on chemical products. The State
Department had emphasized the need for such a decision, because
shipping drugs and chemicals with LG. Farben trade-marks to
foreign markets, especially in Latin America, would be a violation
of the "replacement agreements" of the war period* Under those
agreements the Latin American countries had bought up such
trade-mark rights and retired the marks from local use, or had per-
mitted private firms to buy them and retire them.

The Trade and Commerce Branch at Berlin found two reasons
why this policy "interfered with recovery." In the first place, all the
pill-stamping molds in the LG, Farben plants had the LG. Farben
trade names on them and it would delay production to change the
molds and reprint the labels. In the second place, fhey had been
counting on the "good will" of the LG* Farben reputation through-

2l6

ALL HONORABLE MEN

out the world to help promote sales of the goods. If they had to
adopt some new trade-mark and establish the markets all over again,
the goods would be much harder to sell. Besides, there was no
money for a high-powered advertising campaign to launch any such
new selling venture. So, in order to get their job done, they wanted
to trade on the reputation of the I.G. Farben name.

The performance of some of the "established" German firms was
sometimes less vigorous on behalf of German recovery than were
the efforts of our export-import oiScials. Under the RFC program
for financing raw-material imports, the U. S. Commercial Com-
pany made an initial shipment of some hundred and ten thousand
bales of cotton for processing into textiles, with another shipment
of the same amount to iollow shortly alter. The cotton was allocated
to such firms as Christian Dierig A.G., Germany*s largest textile
combine, whose management had played an important part in Hans
KehrKs synthetic-textile program under the Four-Year Plan. As one
memorandum circulated in the Economics Division put it, "The
conviction is growing on all hands that resumption of textile pro-
duction and exports in Germany can work out satisfactorily only
if the selling end of the business is placed in private hands, and
preferably in the hands of those who were experienced in the trade
before the war."

After a few months of the textile program, a minor flurry occurred
when a shortage of sheets for the use of German hospitals in the
American zone led to the discovery of shortages in the supply of
finished textile products for essential uses and for export, as com-
pared with the amounts of raw materials imported. At the same
time, possibly by coincidence, rather large quantities of rough cotton
* gray goods" began showing up in the black market in Frankfurt
and other cities in the zone.

Such incidents led us to make a few inquiries about the types of
controls being maintained by the German authorities over scarce raw
materials and the products of reviving German industry. Cleaning
up the cartels and combines was being delayed because o£ the need
for the centralized powers of the combines and trade associations, to
avoid "waste'* of materials. We found some remarkable cases. For
example, a ceramics factory had produced twenty-two hundred tons

THE CHRISTMAS-TREE ECONOMY 2iy

of chinaware, of which one thousand tons were of first quality
suitable for the export trade and twelve hundred tons were "sec-
onds," with slight defects. Two hundred tons of the "seconds'' had
been sold to the army for the use of occupation families, and the
other one thousand tons sold legitimately to Germans. Of the first
quality chinaware, however, one hundred and twenty tons had been
sold to occupation personnel through gift shops; sixty-five tons had
been actually exported; and the other eight hundred and fifteen
tons had "disappeared" without a trace, presumably into the black
market.

The point of the story is that when these facts came out it devel-
oped that no regulation had ever been issued by military government
to require German manufacturers to hold goods of exportable qual-
ity for export. None of the firms which showed up with shortages
had violated a single military government regulation in using up
their allocations of coal on production that never saw the light of
the legitimate domestic or export markets.

The urge to cling to the "respectable'* firms with "well-known'*
names was very deep throughout the Economics Division, regard-
less of what the problem was. At one point the Economics Division
came under criticism for failing to dissolve agencies of the Nazi
Party, including commercial firms which had been set up to carry
out parts of the war program. One of these was the Nazi govern-
ment-owned corporation known as "Roges," one of the subsidiaries
of the Rowak Handelsgesellschaft, a government corporation some-
what like our Defense Supplies Corporation of the war years. Roges
had been a stock-piling organization set up by the Nazis to gather
semiprecious metals and alloys used for tool steel and other special
purposes.

The question was what to do with the large supplies of these
metals when Roges was dissolved.

The Industry Branch came up promptly with a solution. They
proposed that the Roges stocks be turned over to the Metallgesell-
schaft. It would not do to turn these metals over to just anyone,
because, among other things, they said that might lead to competi-
tion, which would be inflationary. The Industry Branch proposed
to make Metallgesellschaft responsible for the proper use and dis-

2l8

ALL HONORABLE MEN

position of these metals, because the company was an outstand-
ing firm with "well-established" world-wide connections and was
"strong" enough to do the job properly.

The apparent laxity o£ the Economics Division was partially ex-
plained by what had been happening in the United States as the
export-import program got under way. Resistance to imports from
Germany was developing especially from businesses that would be
facing German competition in the fields of light industrial products.
These products had dwindled in export markets in the prewar years.
By the summer of 1947, Secretary of Commerce Harriman and other
high government officials had to tour the country making speeches
to chambers of commerce and other associations to persuade business-
men that the United States must be willing to accept imports from
Germany.

Under the threat of "resistance" from firms in the United States,
the export-import program was being shaped around specific con-
tracts* First, the industries would be started ^'running," and then
special contracts would be negotiated between American merchants
and German manufacturers for the production of specific goods.
In this way, it was said, the goods could be marketed in the United
States without coming into conflict with pre-established marketing
arrangements among American companies.

Here was a driving force that could, in itself, do a great deal to
press the lines of German recovery back into the old patterns and
grooves. To the reluctance of military government officials to change
was added criticism from business interests in the United States if
they did change. Through it all, representatives of particular com-
panies — those with prewar property interests in Germany — came
through in an ever-increasing stream. They not only looked, but
they stayed to ask what plans military government had for the
future of their companies. After I had resigned from military gov-
ernment, I was asked by newsmen at La Guardia field on July 24,
1947 for a statement. I cited among other things the pressure of
specific American companies like General Electric and General
Motors to prevent changes in Germany that might affect their
properties and business interests. The next day*s press quoted Gen-
eral Clay's reply from Berlin: "I wish that General Motors and the

THE CHRISTMAS-TREE ECONOMY 219

Others could read that [charge] so I would cease being accused of
not having given them an even break.'*

A single isolated case might have had no visible effect on the
shape of the postwar economy. But as the occupation went on, we
saw more than a scattering of plants revived and put into full pro-
duction, not because their product proved necessary to the orderly
development of the economy and the best use of the scarce materials,
but because the plants happened to belong to the Singer Sewing
Machine Company, the International Harvester Company, the Chi-
cago Pneumatic Tool Company, or General Motors; or because
Swedish SKF, or Dutch AKU, or British Unilever, or American
Bosch, claimed an interest In the German company; or because an
American, Belgian or British company had had a prewar arrange-
ment that made it desirable to get military government to reopen a
particular line of German production.

This became what might be called a "Christmas-tree'* economy.
It differed remarkably from Colonel Wilkinson's picture of a strictly
controlled system in the hands of the "ablest" men. Germany could
scarcely be pictured as a clear, flat plain on which men of vision
executed an efficient and orderly reconstruction, taking account of
the realities of war damage and the postwar needs of the entire
European economy. Special economic revivals were popping up all
over the place. The plants of the favored firms were all decked out
with priorities and ornamented like Christmas trees. Around
them clustered the little satellite industries, protected by "hands off"
and "do not touch'" signs. Military government officials were sup-
posed to work out their economic programs without disturbing any-
thing.

Though the "Christmas trees" were exempt from tight control, the
garden variety of Germans who were not of the industrial combines
felt the full force of the controls. Military government, almost from
the beginning of the occupation, put into the hands of "the Germans
themselves" the strategic power to allocate coal, transport, and elec-
tricity. At the insistence of the Industry Branch, old licensing laws
were kept to give the German authorities a better grip on the use
of production facilities.

By 1947, our files contained hundreds of complaints from inde-

220

ALL HONORABLE MEN

pendent German businessmen that although their plants were ready
to operate, they had been refused the necessary license.

A glass works in Bavaria was ready to turn out glass containers,
needed to preserve the fruit and vegetable crop; but the licensing
authority was in the hands of a man who came from a rival firm.
That firm's factory had been bombed out. Only one license to engage
in this type o£ business was to be issued, according to the "policy"
of the German administration in Bavaria, and the license had already
been granted to the firm which was not yet ready to produce.

An artificial-limb manufacturer who had been bombed out of
Hamburg and had migrated to Munich in 1945 could not get: a
license to manufacture or repair artificial limbs in Bavaria. The
appropriate official in the Economic Ministry consulted with the
trade association of Bavarian artificial-limb makers, as required by
the licensing law; and the association said there was no more room
in the business. The outsider from Hamburg could not even get a
license to repair artificial limbs of his own original manufacture, let
alone make any new ones,

A master plumber who had been bombed out of Rostock and
ended up in a small Bavarian town, wanted to help his friends
repair their plumbing. Local plumbers had a backlog of work to
keep them busy for a generation, at least. But when the newcomer
tried to buy ceramic fixtures, tiles, and drain piping, the head of the
trade association called all the possible suppliers and ordered them
not to sell any material to this outsider.

Between 1946 and 1948, while licensing restrictions kept up bar-
riers against newcomers, many more "Christmas trees" dotted the
German countryside, all with well-known trade-marks. Late in 1948,
just before the scheduled arrival of an investigating commission
appointed by the Secretary of the Army, military government put
mto effect a directive we had prepared back in 1946 to order the
repeal of the licensing laws. The policies cited in support of the direc-
tive had been unchanged since the beginning of the occupation.
Military government officials offered no explanation for the two-
year delay.

CHAPTER 17

Double, Double Toil

LATE in October 1946 the Senate War Investigating Committee,
then headed by Senator Kilgore, sent George Meadcr, the com-
mittee's counsel, to investigate charges that some of the important
policies for the occupation were not being carried out. General Clay,
displaying his usual courtesies to important visitors, welcomed the
investigators and instructed all of us at the Saturday morning con-
ference to co-operate fully in the itivestigation and withhold noth-
ing.

One of the first things the investigators discovered was that nego-
tiations having equal effects on the occupation were being carried
out in two quite different channels* If any branch or division
wanted to initiate action of any sort, the staff had to prepare a
"staff study." This required a written discussion of the problem,
together with annexes containing supporting documents, and a draft
of the letter to be signed or the order to be issued. All of these papers
had to be circulated to other interested divisions and branches for
^'concurrence" before they went to the head man for signature. Some
division directors found this formal procedure cumbersome. They
had developed a channel of their own and transacted important
official business simply by dispatching letters on a "Dear Biir or
"Dear John" basis to former business associates and friends in the
government. Military government had developed a split personality.
Outwardly, most policies remained exactly as they had been from
the start of the occupation; but the principal opponents of reform
policies began quietly to propose moves that went in the contrary
direction, as if they were confident that changes were coming.

After the Republicans won a congressional majority in the No-

222

ALL HONORABLE MEN

vcmber elections of 1946, the Republican members o£ the War In-
vestigating Committee released Mr. Meader*s preliminary report,
together with the hundreds of documents the investigators had
picked up at Berlin. The findings of the Mcader report began to
break in the American press on December 3. The full details did
not reach Berlin for several days. When they did, it was clear that
military government was operating in such a way that serious
clashes over policy had continued for many months without being
resolved. This was particularly true of the policy of breaking up
economic concentration.

Actually the question was not whether our colleagues were work-
ing on or off the record in favor of policy changes, but whether we
had a right to insist that the policy — whatever it was — should be
clear, and that public statements about what we were doing should
be accurate.

On December 7, 1946, fifth anniversary of the day President
Roosevelt said would live in infamy, Philip D. Reed, chairman of
the board of the General Electric Company, arrived at Berlin on a
mission he had undertaken at the request of W. AvercU Harriman,
Secretary of Commerce. Secretary Harriman wanted to know what
the Commerce Department could do to help military government
with its economic program. General Draper arranged a meeting
with Mr. Reed in the office of Jack Bennett, General Clay*s financial
adviser. The purpose was to discuss obstacles which stood in the
way of German recovery so that Secretary Harriman, as a mem-
ber of the cabinet, could help remove them.

After preliminary remarks to the effect that the limitations im-
posed by the Trading with the Enemy Act, the denazification pro-
gram, and the decartelization policy were a handicap to German
recovery — however necessary they might be for other purposes —
General Draper introduced Richard Spencer, head of the Patent
Section of the Legal Division. Since the Patent Office is part of the
Commerce Department, Mr. Harriman would be interested in the
defects in American plans for dealing with German patents. Mr.
Spencer launched into a twenty-minute diatribe against a policy
which was actually that contained in a directive approved by Pres-
ident Truman on September 17, 1946. He did not indicate, however.

DOUBLE^ DOUBLE TOIL 223

that it was the official policy which he was attacking. He expressed
himself as setting out the "military government" view on patents.

At the end of this speech General Draper turned to me, five min-
utes before we were to go to lunch, and said: "Now Mr. Martin has
some other views on patents, and perhaps we ought to hear
from him.*' These "other views," thus introduced as though they
were a personal product, were those contained in the presidential
directive. Even this brief discussion was interrupted by a cross-fire
from General Draper and Mr. Spencer; and when I talked to Mr.
Reed after the meeting, he was still quite confused about what the
directive had told military government to do.

The purpose of the patent policy was to set the conditions for
reopening the German patent office without allowing patent pools
and restrictive patent licenses to give German groups a new whip
hand in world economic affairs. The American forces at Berlin
were instructed to work out a four-power agreement on changes
in the German patent laws before the patent office was allowed to
register new inventions and grant the inventors the usual monop-
oly of production and sales. The German patent system had devel-
oped without a context of other laws, such as antitrust laws, to
protect the public against discriminatory uses. The Patent Section
of our military government objected to the inclusion o£ anything
in the German patent law that was not already in the patent laws
of the United States, even though the policy had been framed at
Washington with full consideration of the great differences be-
tween the German and American legal systems.

Mr. Reed*s report to Secretary Harriman recommended a com-
plete review of the patent policy. After months of argument at
Washington, however, the Executive Committee on Economic
Foreign Policy in May 1947 reaffirmed the basic directive. In the
meantime the other elements at Berlin, especially the French and
British, had used the dissension in the American ranks to carry the
argument in another direction.

We had already run into trouble over the I.G. Farben patents in
the latter part of 1946, because the French showed a growing dis-
trust of our intentions. According to one report prepared by a com-
mittee of the French National Assembly, they felt that we were talk-

224 HONORABLE MEN

ing about breaking up the Farben combine, while other Americans
were getting ready to make a good thing out o£ exploiting the Farben
processes without having to pay patent royalties. The British, too,
had ideas about what we intended to do with the Farben patents-
The presidential directive had instructed us to eliminate the restric-
tive licensing schemes of firms like LG, Farben. If we could not get
agreement on a less drastic means, we were to suggest complete
dedication of the patents to the use of the German public. But the
British evidently suspected us of trying to maneuver them out of
control of the "Bayer" processes, centered in the big British zone
plant at Leverkusen, as part of a drive to capture markets for
American firms. So they held that the patents were valuable assets
of I.G. Farben, and that we had no right to "destroy" their value
by eliminating the monopoly feature.

Both the French and British LG. Farben control officers asked
me how I came to hold views on patents which were so different
from those of my colleagues in the Economic and Legal Direc-
torates. Puzzled by the split in the American camp, they insisted on
complete restoration of the patent privileges of the LG. Farben pool.
Compromise was practically impossible because they felt that if
they held on long enough the American position w^ould change;
and if they did not, they might in some way be "outfoxed.**

The Soviet control officer, Colonel A* C. Bayar, strongly supported
the view that the Farben patent monopolies would have to be
eliminated. However, he appeared to find the split on the American
side more amusing than sinister, partly because Soviet foreign trade
was little concerned with ''patented'' items, and partly because his
wartime position with the Soviet Purchasing Commission in the
United States had made him familiar with family squabbles in
American government agencies.

With the inconclusive end of our patent discussions in Jack
Bennctt*s oiJice that December day in 1946, our entire group ad-
journed for lunch at the Harnack House. We were joined by the
other branch chiefs of the Economics Division and by Sir Cecil
Weir, who had succeeded Sir Percy Mills as president of the British
economic subcommission. An undercurrent was provided by Colonel
Lawrence Wilkinson, head of the Industry Branch, who had a copy

DOUBLE, DOUBLE TOIL 225

of the New Yor\ Times for December 5, 1946. A Washington dis-
patch described in some detail the documents and copies of corre-
spondence which I had furnished the Meader investigation at
Mr. Meader*s request. Some of these were decidedly critical of the
Economics Division's handling of developments in the cartel field
up to that time. General Draper showed no outward sign of the
agitation he later expressed over my statements, however, and the
conversation turned quickly to the issue of German currency reform.
This was rapidly supplanting the cartel and patent policies as a sub-
ject of debate.

The contingent from Economics undertook a characteristically

bold treatment of the fiscal policies that were getting in their way. In
the case of currency reform the American official directives from
Washington had proved inconvenient to the Economics Division,
even though actual negotiations were in the hands of the Finance
Division and Financial Directorate. The head of the Finance
Division, who had not found it hard to understand what Washing-
ton wanted to accomplish, was somewhat surprised to hear several
from Economics suggesting the possibility that Sir Cecil Weir
might arrange to have certain points raised by the British in the
four-power discussions, inasmuch as the directive from Washington
would prevent the Americans from raising these points directly.
It would then be possible to cable V/ashington to the effect that
the British were insisting on a different solution, and to ask for
authorization to change the American position in order to reach a
compromise with the British.

As I listened to this talk certain phrases from the New Yor}{ Times
dispatch of December 5 kept coming back to me: **The documents
. . . seemed to represent a cross-section of the American way of
doing things in Germany — virtues, faults, bungling, conniving,
suspicion and loyal adherence to the American program. That is
what access to a good sampling of the papers indicated today."

General Clay returned to Berlin from Washington in the middle
of December at the conclusion of the bizonal merger talks. He had
also appeared before the Kilgore Committee to answer questions
that rose out of the Meader report. We discussed briefly the charges
I had made during the Meader investigation, which were the same

226

ALL HONORABLE MEN

as those we had discussed on several occasions throughout the
summer and fall of 1946. Genera! Clay wanted to know if it would
not be possible to avoid further public outbursts on these issues.

I could suggest only one way, which was to have all matters
that concerned economic concentration and cartels referred to the
Decartelization Branch. We did not like to find out about such
matters through chance, after action had been taken by the Eco-
nomics Division. The issues would be kept clearer if decartelization
were removed to another division rather than kept in Economics,
where the program was a constant source of friction. I offered to
resign if that would help to carry through a reorganization with less
embarrassment to General Clay. He declined the resignation be-
cause, as he said, "I like you and I like your work.*' But he insisted
the turmoil over the Meader report had made a reorganization im-
possible, at least for the present. General Clay had no suggestion
for improving our situation other than that, as a first step, we do
everything possible to bring out a satisfactory decartelization law.

General Clays reluctance to bring the outstanding issues to a
head was disappointing. A question of executing or not executing
written instructions from Washington was being silted over by
what some people might come to consider personal feuding. But
in the end we did have a ^'standstill" agreement to focus the argu-
ments onto specific issues. The Economics Division was to give the
Decartelization Branch an opportunity to comment on criticisms of
the cartel policy contained in official papers. Previously, "action"
papers prepared in other branches had contained statements that
the position of the Decartelization Branch was this or that, usually
attributing to us an unreasonable position which our staff would
have been the last to adopt. In some cases, cabled inquiries from
the State Department about discussions in our four-power com-
mittees had been answered without any help from the participants.

Imperfections in the standstill agreement became evident very
soon. Philip D, Reed's report to Secretary Harriman attacked the
decartelization policy as the work of "extremists" from the Depart-
ment of Justice, and ignored the fact that the policy itself had been
set down by the Big Three at Potsdam. The Reed report went on to
say that decartelization was hampering German recovery, but cited

DOUBLE, DOUBLE TOtL 227

no evidence to support the statement. Its conclusion was that the

enactment of a law to prohibit "excessive concentration of economic
power" in Germany v/ouid be harmful and unnecessary. The pro-
hibition of "cartels" was an idea peculiar to the United States, and
was not shared by the British, French, Russians, or other Europeans.
Until an international agreement on the subject should be reached
through the United Nations, Germany ought not to be saddled
with ^'antitrust" laws.

Copies of this report, almost every statement of which was easily
subject to refutation, were received by General Draper but not
circulated to the Decartelization Branch. I got a copy later from the
Finance Division.

General Clay, on his return from the bizonal talks at Washington,
appeared to consider himself bound to change course and issue no
decartelization law for our zone %vithout the concurrence of the
British. In General Clay*s absence, General Draper had initiated
some discussions with Sir Cecil Weir to see whether a compromise
law could be worked out. He had reported these talks by cable to
Washington. This, in turn, appears to have led Will Clayton or
members of his stalT to suggest that unilateral action for the United
States zone should be abandoned. Though both the French and
Soviet military governments were preparing to issue laws similar
to the three-power draft of August 1946, we had to start drafting a
new version in consultation with Sir Cecil Weir and Brigadier
Oxborrow* As a result, the French broke off the attempt to stay
Within the terms of the draft which had been agreed upon by the
French, Soviet and American delegations in the four-power dis-
cussions. They later issued a law of their own, framed in terms of
French law, while the Soviets likewise set up a different system.
That was the end of any likelihood of arriving at a uniform treat-
ment of the problem, though four-power discussions continued for
another year. By August 1947 those discussions had produced a
new three-power draft agreeable to the American, French and
Soviet governments and much closer to the British version. This was
a further attempt to meet British objections by drafting a four-
power law whose chief provisions were modeled on the British
military governments own drafts. But the British continued to

228

ALL HONORABLE MEN

disagree over methods of carrying out such a law, and this final

attempt at four-power agreement failed.

We had no difficulty in reaching agreement with the British on a
common text of a law to be carried out in the two zones of "Bizonia/*
once the decision had been made by General Clay to drop the idea
of a "mandatory" law. By February i, 1947, we had worked out with
Brigadier Oxborrow a new draft law prohibiting specific practices
in restraint of trade and also providing for investigation of all Ger-
man firms employing more than ten thousand persons. If any such
firms were found to represent an "excessive concentration of eco-
nomic power/' they were to be reorganized and separated into
workable but independent economic units. This law was issued on
February 12 as Military Government Law No* 56 for the United
States zone, and a similar text as Ordinance No, 78 for the British
zone.

Early in February, opposition from an older and more familiar
quarter showed itself. We had been so absorbed with details of
passage of the law that the chief problem — controlling the main-
spring of German economic warfare — had been briefly eclipsed. The
reminder came with Herbert Hoover's visit to Germany at the
suggestion of President Truman. Though he had been asked princi-
pally to study the German food problem^ Mr. Hoover fanned out
very broadly into all phases of economics and politics. A restate-
ment of the traditional German resistance to reform was the result.
The specific problems of feeding occupied only one part of his
report. The principal focus was on general economic problems, and
on these the advice came from the late Gustav Stolper, former Ger-
man economist, who was at Mr. Hoover's elbow throughout
the trip.

At Berlin there was the usual "briefing" of the Hoover party by
the Economics Division, with the bulk of the time allocated to
problems of German reconstruction and a brief period at the end
for problems of economic power. This time there was a difference.
After representatives of the Industry and the Trade and Commerce
branches had made their usual remarks about the hampering effect
of the anticartel program, the Decartelization Branch representative
rephed by describing the new law. Thereupon Herbert Hoover

DOUBLE, DOUBLE TOIL 229

remarked that he could see nothing wrong with such a law, and
thought an "antitrust law" might be a very good thing in Germany.

After the "briefing'* Dr. Stolper showed some agitation over Mr.
Hoover's remarks. He circulated among the group, arguing that the
new law was a **very bad'' thing for Germany. It was just like the
denazification policy. The main job of denazification had been done
by Hitler himself w^hen he committed suicide. Even the hanging of
the other top Nazis had gone too far. The same was true of the
cartels and combines. The war had ended Germany's ^'concentration
of economic power." Decartelization and other such reforms were
in reality aimed at destroying Germany and the German character,
including the many good things in the German tradition.

The text of the Herbert Hoover report of 1947 did not reflect any
of Mr. Hoover's favorable remarks about ^'antitrust" laws. The
report concluded that concessions must be made to the old-line
financiers and industrialists in order to obtain the help of their
management abilities in European recovery. The "reform" policies
showed up as deterrent to recovery^

At the time of the Hoover report, the fear that the decartelization
law would stop German recovery was like a horse's fear of a scrap
of paper. Law No. 56 was still nothing but paper and printer's ink.
Until enforcement machinery was set up no German was obliged
to do anything. The law was a declaration of intention to carry out
something that was already in the Potsdam Agreement and in the
Joint Chiefs of Staff directive.

Wc began the long process, again through the "staff study'*
routine^ of getting the concurrence of the rest of the Economics
Division on proposed procedures to carry out the law. We could
see at the beginning that this might be just as big a job as getting
approval of the text of the law itself; so we divided up the work
among the different parts of our staff. The deputy chief, Phillips
Hawkins, undertook to work out with the British and with the
Economics Division the organization of a bizonal enforcement
agency and a set of procedural rules for bringing cases under the
law. The four assistant branch chiefs undertook more specific jobs.

Johnston Avery, who had joined our staff at Berlin from his
former position as executive officer of the Antitrust Division, pre-

230 ALL HONORABLE MEN

pared an enforcement program. Creighton Coleman carried the
four-power negotiations and also prepared drafts of supporting
legislation that would have eliminated large holding companies,
interlocking directorates, the issuance of "bearer** shares, and other
foundations o£ concentrated power. Captain Francis W. Laurent, a
retired naval officer from the Navy Department's legal division,
began to prepare draft orders to require the reorganization of the
outstanding big combines in our zone. Colonel Richardson Bronson,
deputy I.G. Farben control officer, was to carry further the Farben
reorganization. Finally, all the staff was to contribute material to a
four-volume Report on German Cartels and Combines, to be
edited by Charles C. Baldwin, formerly of the Economic Warfare
Section of the Department of Justice.

Our objective was to prepare as quickly as possible some actual
cases involving German combines whose structures and past history
made them unquestionable examples of the "excessive concentration
of economic power." We would push for definite action to re-
organize these combines, and at the same time prepare a full discus-
sion of all the big combines and their place in Germany*s distorted
industrial development of the period between wars. We wanted to
throw as much light as possible not only on the problem but also
on what we were trying to do»

We had discovered an almost pathological fear of the light of
publicity in some parts of the Economics Division. Men who basked
in press handouts and glowed warmly under the light o£ favorable
publicity turned pale when confronted with a pertinent direct ques-
tion from a seasoned press correspondent. Delbert Clark, head
of the Berlin bureau of the New Yor\ Times, was such a corre-
spondents After watching the reaction in the Economics Division
to a series of Clark's stories, one observer remarked, "They
would cheerfully give three weeks* rations of PX cigarettes to avoid
being mentioned in one of Delbert Clark's dispatches." A carton
of PX cigarettes at the time had a barter value of about $100. An-
other correspondent who had covered the earlier phases of the
occupation with considerable effect had been Edd Johnson of the
Chicago Sun. Johnson's dispatches had cited case after case where
official acts did not jibe with official policies. His final interview

DOUBLE, DOUBLE TOIL 23I

with Russell Nixon in January 1946, just before Nixon left Berlin,
became a classic in blowing the Ud.

In our favor was the fact that the official policy in our field had
remained unchanged for the first two years of the occupation, and
had been restated on many occasions by General Clay even after
the conditions of the occupation had begun to change. We knew
that if the policy was sound and if the program was sound, either
we would get some results or someone sooner or later would want
to know the reason why.

Three volumes of the four-volume report were in rough draft
form by March i, 1947; but we then discovered that there would be
difficulty in publishing such a report. It would have to be "edited" by
the Reports and Statistics Branch of the Economics Division and
then cleared with **all interested branches and divisions** before
publication could be approved. This might take months, and even
then the Economics Division would have the final word on what
material was included. We also found that we faced a possible "stop
order" preventing the staff from doing anything further on the re-
port until it had been cleared. At diis point we commandeered every
typewriter and typist in the branch and in one day cut five hundred
eighty-four mimeograph stencils to get out a draft copy of the full
report. Charles Baldwin found a German print shop to bind some
two hundred copies, which we immediately distributed as widely
as possible to government agencies. It was a "draft submitted for
comment only," and not an "official" document.

Early in April 1947, the State Department asked for my return
to the United States on temporary duty to discuss our report and
our proposed program of action under Law No. 56. I flew back and
spent several weeks on these discussions. It was apparent from the
first that the changes in Congress after the November elections of
1946, more than the changed conditions in Germany, were re-
sponsible for the growing confusion on German policy matters.
The mood was not so much one of change as of indecision.

We needed an issue that would crystallize the points of indecision.
Was the United States still opposed to the centralization of German
economic power? On May 3, a Berlin dispatch announced the end
of another in a series of tours of Germany and Austria which the

232 ALL HONORABLE MEN

War Department had been sponsoring to enlighten influential
people about the problems of occupation. In this case, as the New
Yor^ Times put it, "Fourteen top business executives o£ the United
States concluded today a two weeks* tour of the key cities of Ger-
many and Austria. They made the trip at the request of Secretary
of War Robert P. Patterson to study German industry and the
Military Government's industrial program."

The War Department on May 8, 1947, released the report prepared
by the fourteen top business executives. The statement began by
aiHrming their "complete and unanimous agreement" with the con-
clusions of the Herbert Hoover report. On the basis of their two
weeks' tour they found it a "masterful summary of the situation in
Germany." Then the executives presented their first recommenda-
tion. They said:

We tiow set forth several major issues with which the Office
of Military Government has to deal, together with our comments
and suggestions thereon.

T. Decartelization. Law 56 and Regulation No. i embody a
series of controls and regulations^ many of which represent eco-
nomic principles quite new to the German mind and to the past
industrial development of the country.

Since we are now confronted with the urgent necessity of
bringing about as rapidly as possible recovery of the economic life
of a starving people — it is our belief that too strict adherence to
tlic Law in its administration will seriously retard this primary
objective.

With no desire to criticize the principle of this law as it has
been written — we do, however, recommend, if at all possible, that
the enforcement of these regulations be postponed, or at least
sufastantiaiiy modified, until the industrial economy is in a rea-
sonable state of operation.

Other recommendations included the need for "incentives" to

German industry, agriculture and labor, the promotion of exports,
the downward revision of reparations, the end of denazification, and
change in the level of industry.

I discussed this report with the Attorney General, Tom Clark.
A few days later Mr, Clark was approached on another matter by

DOUBLE, DOUBLE TOIL 233

M- S. Szymczak, a member of the Federal Reserve Board who had
been serving in Germany first as head of Trade and Commerce
and later as director of the Economics Division after General Draper
moved up to become Economic Adviser to General Clay. Among
other things, Mr. Szymczak raised the question of modifying tlie
antitrust decrees in the Merck case so as to allow the Merck com-
panies to co-operate on penicillin production in Germany* Mr. Clark
in return suggested that there should be first a general discussion of
the decartelization program. He asked Mr. Szymczak to arrange
an informal conference with representatives of the State and War
Departments, to be held in the Attorney Genera Is office on May 20.
Willard Thorp, Assistant Secretary of State for Economic Affairs
and two members of his staff attended for the State Department,
and two men from the Civil Affairs Division for the War Depart-
ment, in addition to Mr. Szymczak and myself.

At the end of a brief discussion, the Attorney General asked me
to prepare a memorandum setting forth the views I had just stated
and with which all those present had concurred. He wanted to sub-
mit my memorandum for discussion at a meeting oi the cabinet
on May 22*

In brief, I said that we wanted to know first whether the
cartel policy had been changed, and if so, what the new poUcy was.
Secondly, whatever the policy might be, we wanted military govern-
ment to be instructed to carry it out instead of debating it. In
particular, I pointed out that the report of the fourteen industrialists
was based not on direct observation but on the "briefing" which all
such groups had been receiving from the Economics Division at
BerHn.

The Attorney General told me after the cabinet meeting that the
members had agreed with the substance of my memorandum and
had seen no reason for changing the government's policy on de-
cartelization. This conclusion was then made official in a new
version of the JCS 1067 directive, which had been undergoing
revision to take account of changes during the two years of occu-
pation.

The new directive of July 15, 1947 stated: "Pending agreement
among the occupying powers you will in your zone prohibit all

234 HONORABLE MEN

cartels and cartel-like organizations and effect a dispersion of owner-
ship and control o£ German industry through the dissolution o£
such combines, mergers, holding companies and interlocking direc-
torates which represent an actual or potential restraint of trade
or may dominate or substantially influence the pohcies of govern-
mental agencies. You will not, however, prohibit governmental
regulation of prices or monopolies subject to government regulation,
in fields where competition is impracticable. In so far as possible,
you will co-ordinate your action in this field with the Commanders
of other zones of occupation,"

After the cabinet meeting of May 22, I cabled my resignation to
Berlin. I knew that the policy was being reaffirmed on paper; but
no official notice was being taken of the fact that its execution had
been deliberately delayed. My resignation would make it impossible
for those in charge to attribute their delaying tactics to alleged
**feuding" between the chief of the Decartelization Branch and
the Economic Adviser to the Military Governor. I hoped that
General Clay would appoint a new chief who would be, beyond
question, persona grata to the Economics Division. He appointed
my deputy, Phillips Hawkins, whose engagement to General Dra-
per*s daughter had been announced during my absence.

In a final note to General Clay on July 14, 1947 1 reviewed the Eco-
nomics Division's record of obstruction to the program which
General Clay himself had said he approved. I concluded by saying,
**My decision to return to the United States was based upon a desire
to contribute to the clarification of United States policy on cartels,
monopolies, and concentrations of economic power. It is my feehng
that such efforts will be more likely to succeed if they are vigorous,
but constructive rather than recriminatory; and therefore I have no
particular desire to engage in unnecessary argument about the past
performance of the Economics Division imless called upon to do so."

CHAPTER 18

The Decline and Fall

GENERAL Clay exhibited a well-developed historical sense. Yet
a future generation of historians may find that, ironically, it was
this sense of history, combined with the lifetime habits of a military
career, that contributed most to the defeat of the occupation. Gen-
eral Clay, in my first talk with him in January 1946, said that he
was determined to make the four-power occupation succeed. He
was convinced that failure to make four-power government work
would be a catastrophe, and perhaps the biggest single step toward
a third world conflict.

The end of battle in 1945 had signaled the start of a new kind
of war — a post-war. Germany's classical military theorist, von
Clausewitz, is famous for having declared that "war is the continu-
ation of diplomacy by other means/* In dealing with a Germany
which had gone to school with von Clausewitz for generations, we
knew that, conversely, a post-war is the continuation of war by other
means. Since Bismarck, wars and post-wars have formed a con-
tinuous series, changing the quality of the events only slightly from
year to year, with no such thing as a clear distinction between heat
of battle and calm of peace. This post-war of the German occupa-
tion was difierent from the '*cold war" between the United States
and Russia, which broke out at about the same time. The latter
complicated the diagnosis, like a man getting typhoid fever and
pneumonia at the same time.

In the first years of the occupation of Germany, the two struggles
had not yet become confused. General Clay said the best contribu-
tion we could make to peace would be to get four-power co-opera-
tion in carrying out the agreements for the control of Germany.

236 ALL HONORABLE MEN

Later, others with less historical sense began to support anti-Russian
Germans on the theory that "any enemy of Russia is a friend of the
United States." The two wars became interwoven, and men who
saw no difference came to make up the effective bulk of General
Clay's staiJ. When the Economics Division chose to ignore agree-
ments to limit heavy industry and expand light industry, this de-
parture was ''necessary" to build up a strong Germany. When the
French or Russians objected to economic "unity" under the leader-
ship o£ old-line Ruhr coal and steel men, the same people held that
failure of the French and Russians to live up to the Potsdam agree-
ment for economic unity was an act of international bad faith. Here,
instead of cracking down on his own staff, General Clay let the
pendulum swing. He allowed his sense of history to tell him such
developments were inevitable.

On our hst day in Berlin, July 24, 1947, my wife and I invited
General Clay to lunch with us before we left for Tempelhof. For
about two hours we exchanged views on where everything was
heading. It was a more illuminating kind of talk than the business
conversations and social chatting during the previous year and a
half. General Clay explained some of his ideas about the course of
history, with several references to works like those of Arnold Toyn-
bee, describing the patterns through which civilizations have devel-
oped and changed. Among other things he mentioned that he had
been through the last occupation of Germany, too. With his wry
sense of irony he said that we had done a better job in the present
occupation: within the first nine months we had made mistakes
that were not made in the former occupation for nearly two years.
We asked him to account for the difference. Why did it seem that,
far from having learned a lesson from Germany's part in World
War I, people were pressing to repeat the same mistakes sooner?

General Clay answered that the last time, one man, Woodrow
Wilson, pointed the objective that he wanted to reach. Even though
Congress later disavowed the objectives and turned the policies
about, still in the first years of the occupation it was possible to
know what "'Washington" wanted. In this occupation, an unwritten
law had decreed that all statements ot policy must be bipartisan,
supposedly to avoid the possibility of repudiation of a Democratic

THE DECLINE AND FALL 237

administration's acts by a Republican Congress. But this meant that
on many critical points the statements from ^'Washington** had in-
cluded contradictory points of view.

It was one thing, he implied, to believe in his own mind that the
objective was clear, and another thing to charge any of his subordi-
nates with violation of orders if they adopted different interpreta-
tions. I knew that this much was true. For example, the policy
against renewed emphasis on German heavy industries was subject
to an ali-inciusive exception for acts necessary to prevent "starva-
tion, disease and serious unrest.'* The Economics Division had in-
voked this phrase to justify all manner of departures from the spirit
of the Washington instructions, and to fly in the face of the Potsdam
agreement, merely asserting that each exception was necessary to
avoid ^'disease and unrest."

General Clay did not flatly admit criticism of his subordinates,
and especially did not mention the Economics Division; but the
implication was that he had tolerated the undercutting of his own
policies because of these verbal formulas. The total effect was failure
to carry important objectives; but each step had had a plausible
ground in the wording of the directives. General Clay offered no
explanation of his failure to cut through the wordy arguments and
put the official policies back on the track. We left Germany with
that question unanswered.

It was a fair guess that confusing the cold war with the post-war
was leading to competitive wooing of the most strongly entrenched
German elements. That would mean the end of reforms — not
merely the end of dccarteiization and denazification, but of land
reforms, intensive agriculture, the rebalancing of heavy and light
industry, political decentralization, re-cducation, and the others.
But the "civilian" and "military" habits under such circumstances
are sometimes different. A civiHan may fight back on a matter of
principle; and if defeated will resign. The military habit is to argue
back until stopped by a direct order from higher authority, and
then knuckle under. General Clay, sensing a swing of the pendulum
or a wave of the future, had held his fire in cases when he, as "higher
authority," had the power to give a direct order. As a result he was
steadily losing both civilians and ofHcers who had been in charge

238 ALL HONORABLE MEN

of the "reform" programs. The fights for the reform programs
looked like mere quarreling if the opponents of reform were not
declared "wrong." Yet the reform poUcies remained ^'unchanged/'
while the reforms were totally blocked.

My own resignation made me the third director of the cartel pro-
gram to withdraw after what newsmen persisted in describing as a
"bitter feud." Colonel Bernstein and Russell Nixon, my predecessors,
had had the same experience. But the cartel program was not the
only one stopped in that way. Dr. John H. Canning, deputy chief
of the Food and Agriculture Branch, left his position in August
1947, declaring that the farm program had been, completely mis-
managed through lack of authority to carry out reforms. His chief,
Brigadier General Hugh B. Hester, left a little later at the end of
a long but unsuccessful struggle to establish a food program in line
with the directives. General Hester had been one of the most out-
spoken oiHcers around General Clay's table from the beginning of
the occupation* He finally applied for an army assignment to another
command after General Clay disapproved his basic program for
increasing the productivity of farms in our zone. Dr. John W.
Taylor, president of the University of Louisville, resigned as chief
of the Education Branch after finding every pathway blocked. While
resignations took many, reductions in staff took many more. When
divisions like Economics were ordered to reduce their total staff, the
"reform" agencies took the biggest cuts.

Even the few steps taken to rebalance heavy and light industry
bogged down. General Clay in 1946 had halted all but a minimum of
dismantling and removal of plants from the American zone under
the reparations agreement, and the British did likewise in their
zone, until the effects of disagreement with Russia over ^'economic
unification" should be determined. In 1948 British and American
authorities announced that 682 plants, worth about $203,000,000,
would be made available for reparations as the first step in the
delayed reparations program. Sir Brian Robertson, the British Mili-
tary Governor, pointed out that these removals were so small as to
be practically insignificant. There were approximately 50,000 plants
in the British zone, of which 496 were included among the 682 to be
taken from the British and American zones. He said, "Admittedly,

THE DECLINE AND FALL 239

some of the 50,000 are small plants — so are some of the 496."

A wave of protest, not only from Germans, but from sources
in America and Britain, soon stopped the program once more*
Organized groups denounced the reparations program as uneco-
nomic and unrealistic. General Clay this time came to the defense
of the dismantling program. He said, "It is my own belief that a
considerable quantity of these plants that are to go into reparations
can, in fact, be placed in production elsewhere quicker than in Ger-
many and, if that is true, would provide an increase in European
production which is so essential for the economic recovery of all
Europe." He pointed out that with the shortage of coal, practically
all of these plants were lying idle and could not, in any event, be
used in Germany for a long time to come.

The shock and outrage felt by German sympathizers In the United
States over the resumption of dismantling was shared only slightly
by the German business community. Ernst Matthienson of the
Dresdner Bank in Frankfurt said that when early reports leaked
out indicating that a reparations program was to be resumed, the
stock market fell. When the list was finally announced, however,
"we saw that it affected a small portion of German industry. It was
what you might call an ^agreeable disappointment.* The market
recovered quickly/'

Even the token removal of 682 heavy industrial plants was cut
down. The Economic Co-operation Administration sent an in-
dustrial advisory committee in November 1948 to examine 381 of
the 682 plants, to see if some could be used for German recovery.
The committee recommended retention of 167 of these, pointing
to the "incongruity of dismantling and removing equipment at the
same time that we are trying to promote [German] industrial
recovery." The committee overlooked the purpose o£ the reparations
program, which was to shift some heavy industry to other parts of
Europe, while lighter industries were to be rebuilt in Germany.

During 194S, the United States poured in $650,000,000 and Britain
$70,000,000 to "prevent disease and unrest'* in Germany, and the
Economic Co-operation Administration supplied another $400,000,-
000 to help expand industrial production. The use of nearly three
quarters of a billion dollars to avoid disease and unrest, largely

240 ALL HONORABLE MEN

through food shipments, was itself incongruous in the light of what
had happened to the food and agriculture program. Not only did
General Clay refuse to approve agricultural reforms, but his
military government was not permitted to enforce the equitable
distribution of food. In 1947 and 1948 the bizonal area had a German
population- of 42,000,000, about 33,000,000 hving in cities and
9,000,000 in rural areas. During this time, food raised in Ger-
many was actually delivered from the farms to the markets at
the rate of 1645 calorics per day for each of the 42,000,000 inhabit-
ants, if evenly distributed* Shipments from the United States during
this period included four and one-third million tons of food, largely
bread grains, equivalent to 945 calories per day for each of the
42,000,000 inhabitants. This was an over-all average of 2590 calories
per day for all inhabitants, even including the 9,000,000 rural in-
habitants who were normally self-sustaining. The items included in
this count comprised the basic foodstuffs: wheat, potatoes, milk,
meat and fats, and sugar. Other foods like vegetables, fruits and fish
obtained in Germany simply added to the total. If military govern-
ment had maintained an adequate staff to supervise German food
authorities, and had done nothing more than see that these food-
stuffs went to the 33,000,000 city-dwellers, the domestic food in the
city markets would have averaged 2100 calories per person, and the
imports from the United States 1200 calories: an over-all average of
3300 calories of basic foodstuffs, more than double the "starvation"
figure of 1550 usmlly cited.

Yet there were food ''shortages*' in German cities. By order of
General Clay, military government by the end of 1946 had stopped
employing American food and agricultural inspectors, except for a
dozen American officers and civilian employees for the whole zone.
By the middle of 19479 spot checks in parts of the American zone
had indicated that estimates furnished by German farmers figured
their crops too low by as much as 60 per cent, and that actual farm-
to-market deliveries varied quite substantially from official estimates
and quotas. Thefts of imported grains were running as high as 10
per cent in transit between the ports of Bremen and Hamburg and
the cities of the Ruhr.

German officials had nothing to gain by antagonizing their con-

THE DECLINE AND FALL 241

stituents with, enforcement activities, especially when the only effect
of their bungling was to increase donations of food from the
United States. Early in 1947 General Clay told the German min-
isters-president at a meeting in Stuttgart that they had bungled the
food program and that the degree of co-operation among them-
selves and with the military government was 'less than at any time
in the past two years."

A battle was being waged among the occupying powers to see
who could win the support of "the Germans themselves." In Bi-
zonia, a German economic administration was vested with con-
stantly widening powers to shape the industrial and commercial
development of the area under United States and British control,
with the military governments restricting themselves to "observa-
tion and advice.'* The effect in Germany was the same as if the
original architects of the New Order had been in charge*

The bizonal German administration was not long in becoming
the rallying point for extreme conservatives and others committed
to a plan of centrahzation. By the spring of 194(8, Robert Pferd-
mengcs, the Cologne banker, a long-time associate of Franz von
Papen, Friedrich Flick and Hjalmar Schacht, and the richest man
in postwar Germany, was reported to be in the midst of negotia-
tions with the French de Wendel family to arrange joint Franco-
German ownership in certain Ruhr industries. Two years later he
was one of the first men named by Chancellor Adenauer to negotiate
with the French when Foreign Minister Schuman proposed a coal
and steel pool, supposedly as a means of avoiding the old cartel.
While he did not take an official post in the bizonal administration,
Pferdmenges remained very close to his German associates who did,
including Ernst Helmuth Vits of the rayon combine and Heinrich
Dinkelbach of United Steel, both of whom assumed control of their
respective fields for the new administration.

Baron Freiherr Edouard Otto von Maltzan, who became chief of
the export-import division of the economic administration, had
served as a member of the Franco-German armistice commission.
Previous to that time, he had served in the foreign affairs depart-
ment of I.G, Farben, under Max Ilgner.

When the military government approved setting up a bizonal

242 ALL HONORABLE MEN

German bank, the Bank Deutscher Lander, the German board of
directors proposed Hermann J. Abs, of the Deutsche Bank, for
president. For chairman of the board they proposed August Schnic-
wind, formerly a director of the Reichsbank under Dr. Schachc*
Schniewind in April 1948, when the new bank was being set up,
was serving as liaison officer for the European Recovery Program
under the bizonal economic administration. Both Abs and Schnie-
w^ind decUned to take posts in the new bank unless they were given
the power to override the eleven-man board of directors in certain
cases. Military Government balked at going quite that far; but
Schniewind then became the chairman and Abs the deputy chairman
of the Reconstruction Loan Corporation, a government corporation
with power to select the private firms that were to get loans for
industrial expansion.

Dr. Johannes Semmler was one of the few whose opposition took
a form that General Clay's military government v^^ould not tolerate.
Dr. Semmler was ousted as chief of the bizonal economic adminis-
tration after he made a violent public speech denouncing the policies
of the bizonal occupying forces.

Dr. Schacht, the financial mastermind of the Nazi era, was
acquitted at Nurnberg in 1946 of charges that he had participated
in waging "aggressive war.'* His contribution had been the plan
of economic war that set the stage for the shooting war; but he
had left the Reichsbank before the shooting began. One of our
men, Richard Kirby of the Dusseldorf detachment, interviewed
Schacht at the prison in Stuttgart where the financial doctor was
awaiting "denazification." Schacht said that if he were given three
weeks, with access to his personal files and thirty or forty sheets of
paper, he could present a plan for postwar German recovery that
would not cost the occupying powers a dollar. He refused to go
into details unless he could talk directly with officials at the top
who would have power to put his plan into effect. To Kirby he
would give only a brief sketch.

In outline, Schacht's idea was an economic union of Germany
with other European countries, with some control of prices but
without the general lowering of trade barriers which characterizes
a ^'customs union.** Germany would become the industrial center

THE DECLINE AND FALL 243

of such an economic federation, and would produce machinery and

heavy equipment in exchange for food and consumer goods. Under
this plan, American and British interests would be admitted to joint
ownership with the former German owners and managers of the
big industries, especially in the Ruhr. This was to be "international
control of the Ruhr" in reverse, with a German group taking the
key position in an international organization that would control all
basic industries of western Europe.

Though Dr. Schacht's plan was not immediately accepted by the
occupying forces, Schacht himself was declared by the American
military government in 1949 to be eligible for responsible admin-
istrative posts in German agencies. The position taken by the
western German government in negotiations with the French over
the Schuman plan in 1950 bore a striking resemblance to Schacht*s
ideas about Germany's place in a European economic union,

The increasing boldness of German proposals in the later years
of the occupation went along with the growing uncertainty of
American policies. During the first years, while many things that
were happening seemed inconsistent with the objectives of the
occupation, the guiding policies were said to be unchanged. By
the end of 1947, the arguments for a "new policy" came out into the
open.

Early in 1947 a cable came from the War Department to Genera!
Clay with the news that Lewis H. Brown, chairman of the board of
the Johns-Manville Corporation, a firm of the Morgan group, pro-
posed to visit Germany to ofTcr advice about how to get German
industry on its feet* The reply cable from Berlin was a polite
demurrer, indicating that General Clay already knew his job and
suggesting that Mr* Brown's proposal should first be discussed with
Frederick L. Devereux who was still in Washington recruiting
personnel for high military government positions. Shortly thereafter,
Mr. Brown made his trip into Germany with General Clay*s ap-
proval. This visit was especially significant because it was the only
visit by a supposedly private businessman to eventuate in a semi-
official "report** of such sweeping dimensions.

In the fall of 1947, Mr. Brown published his Report on Germa72y,
which he introduced as follows: "Learning that I was coming to

244 HONORABLE MEN

Europe on a special trip, General Lucius D. Clay suggested that I
spend as much time as possible in Germany to get first-hand in-
formation as a basis for a report on what should be done to get
German industry on its feet and off the backs of the American
taxpayers as soon as possible* ... In view of the urgency of the
problem, I could not, as a patriotic citizen, refuse to take the time
from my scheduled trip for intensive study of the German problem."

The Brown report repeated conclusions that had already become
familiar as the outcome of briefings at Berlin. But this time a
new note was added: the recommendation that German industry,
controlled by its former managers, should be built into a powerful
bulwark against Russia. The report pointed up the assurance given
to Mr. Brown by a number of leading German industrialists that
in the event of war with Russia, the Germans would be on the side
of the United States.

The Brown report was, technically speaking, unofficial. But the
year 1947 marked a turning point. Officially the purposes of the
German occupcition were those set forth in the revised Joint Chiefs
of Staff directive of July 15, 1947, approved by the President. Ac-
tually, the occupying powers, through a curious parallelogram of
forces centered in Germany, were doing things for Hitler's New
Order that Hitler himself had never been able to do. Both sides of
the cold war were openly feeding German nationalism. Both were
building up industrial potential, the Russians offering full employ-
ment to workers, Britain and the United States offering a free hand
to industrial leaders. What was emerging was a European economy
dominated from a central hub of German heavy industry, with an
outer ring of satellite areas supplying food, raw materials, and light
industrial products.

CHAPTER 19

The Nineteen

DESPITE the general downhill direction of reform programs in
Germany two years after V-E Day, the program to curb the powers
of the cartels and combines stayed for some time on a plateau. In
July 1947, nothing seemed inevitable. The very possibility that the
entire pattern of postwar errors from World War I might be
repeated carried with it the possibility that public officials and the
public would see the shadows of the coming events. Seeing them,
they could act; and it was not too late to act*

In declining to end my period of service with General Clay on a
note of recrimination, I had the hope, which was shared by nearly all
the members of the Decartelization Branch, that a constructive
demonstration through enforcement of the new h\v might put an
end to captious criticism. When I returned to Berlin after the cabinet
meeting of May 22, 1947, several newsmen asked what had happened
in Washington. I described the background of the cabinet dis-
cussion, the probable future of the cartel program, and my own
reasons for resigning. Lawrence Wilkinson, by that time director
of the Economics Division, took violent exception to my statement
that the cartel policy had been deliberately undercut. He demanded
that I send all documents in the matter to General Clay, and even
suggested that "disciplinary action" might be called for, not only
because I had answered the correspondents' questions, but also
because, while I was In the United States, I had participated in
taking the question of cartel policy up with the cabinet.

In my memorandum to General Clay of July 14, 1947, I declined
to pursue such an issue. I had resigned not as part of a feud, but to
clear the decks. After months of turmoil, we had produced, and

246 ALL HONORABLE MEN

General Clay had issued, a law. This law said, concretely, what the

policy against excessive power concentrations was to mean in Ger-
many under military government. Now, regardless of personal feel-
ings on the winning or losing sides, the time for debate had ended.
It was doubtful that any of the additional laws suggested in my
memorandum of August 2, 1946, which General Clay had approved
**in principle," would now be issued to supplement Law No. 56; but
General Clay had appointed to head the branch a man whose
previous official duties had not involved him in the sometimes heated
debates inside the Economics Division, and there would be no
pretext for opposition. We felt that since General Clay himself had
carefully gone over the final drafts, and since Washington had ap-
proved it as a measure falling within the official policy, General
Clay would feel himself compelled to allow the staff to get on with
its work of enforcing this one law.

The staff of the Decartelization Branch was hard at work pre-
paring findings of fact and recommendations in several specific
cases. This was a course of action that we had agreed upon back
in February 1947, just after General Clay approved the law. Wc
had agreed that the main job for the immediate future was to
enforce the law and let the results show whether or not the
program was proportionate to the need. We had proposed to select
several combines that were very large, with a monopoly or near-
monopoly position in important industries. They must have an un-
disputed record of collaboration in the Nazi economic scheme, pref-
erably with international ties that had made them weapons of
economic warfare. These firms would be called upon to show cause
why they should not be separated into several independent enter-
prises under new management, as required by the new law.

Four outstanding cases suggested themselves. Three of these,
the Henschel locomotive and armaments firm, the VKF bearings
combine, and the Robert Bosch automotive-equipment trust, had not
only their head offices and principal places of business, but also the
bulk of their plants and other assets, in the American zone. The
fourth, the Haniel family*s Good Hope steel and machinery com-
bine, had the headquarters of its top holding company and the bulk
of its machinery and diesel-engine factories in the American zone.

THE NINETEEN 247

and its coal, steel and shipping subsidiaries in the British zone.

While procedures for co-operation with the British were being
developed, the staff of the Decartelization Branch turned its at-
tention first to the three representative combines in the American
zone. Each of the cases illustrated a different type of problem, and
together they presented a cross-section of the situations likely to
turn up in other cases.

The firm of Henschel und Sohn of Kassel owned not only the
largest locomotive-building shops in Europe, producing locomotives
for the German state railways and for export, but, in addition,
owned other factories producing trolley-busses, narrow-gauge en-
gines, heavy trucks, road-making machinery and other heavy equip-
ment, and had interests in a great many other lines of business. The
Henschel family ties with the Nazi regime were close and the firm
had distinguished itself early in the armament program by the de-
velopment and production of the ''Tiger'* tank and the 88-miUimeter
gun. The firm had also undertaken a large aircraft-engine program
for the German air force. The several plant groupings owned by
the parent Henschel firm had operated independently of one an-
other with practically no intermediate processing of common com-
ponents to be shipped back and forth among different plant groups.
Not only was the case for reorganization clear-cut, but it would be
a simple matter to separate the different plant groups from the
common control of the Henschel crowd without "interfering with
production" in any legitimate sense of the word.

The other two American-zone test cases, VKF and Bosch, were
complicated by international ties and contractual arrangements;
but they, too, were simple from the standpoint of their productive
activities in Germany, where each of their separate plant groups was
operated independently of the others. If any pressure should be
brought on the military government to go easy, for reasons not
mentioned in Law No. 56, the issue of "interference with pro-
duction** could he kept within manageable bounds. If the staff had
chosen examples like Degussa or the Metallgesellschaft, questions of
technology might have complicated the arguments.

The case of Robert Bosch, G.m.b.H. of Stuttgart involved some
old puzzles. The American Bosch Corporation of Springfield,

248 ALL HONORABLE MEN

Massachusetts, had been seized by the Alien Property Custodian
of World War II. Its predecessor firm had likewise been seized in
World War I and between wars had found its way back into Ger-
man control.

For years the German Bosch combine has controlled a majority of
German production in the fields of automotive and aircraft electrical
equipment and aircraft fuel injection. The firm controlled patents
in these fields, both in Germany and abroad. Largely because of
patent agreements between Bosch and companies in France, Britain
and the United States, the use of fuel injection instead of carburetors
on aircraft motors had remained a peculiar advantage of the Ger-
man aircraft industry and had no counterpart in the other three
countries.

The Bosch firm's key position in Germany rested rather on its
control of patents and technology than on size of its manufacturing
plants. The company's books show^cd assets valued in 1945 at a
hundred and forty million dollars, all controlled by the Bosch
family. The eight members of the management and supervisory
boards held a total of thirty-eight positions on the boards of other
companies. Through control of the only large central research labora-
tory in its field, the firm had a voice in the operation of other firms
whether or not it owned any interest in them. In the same way its
activities abroad had reached beyond the control of assets or stock
in other companies.

The cloaking of the Bosch outpost in the United States was more
smoothly arranged in World War II than it had been during
World War I. After World War I, a group of three men, headed
by one Martin E. Kern, representing themselves as American
citizens, had bought the Bosch properties in the United States from
the Alien Property Custodian. Mr. Kern, who became president of
the new American Bosch Magneto Corporation, actually was an
alien who represented himself as an American citizen of Swiss
extraction. Four years after he became president of the company,
he was convicted of making a false statement in an application for
a passport when he made the same claim to American citizenship.

Curiously enough, after paying a heavy fine in the latter case,
Mr. Kern was allowed to continue as president and director of

THE NINETEEN 249

American Bosch* Though the Alien Property Custodian notified

the Department of Justice of Kern's conviction, no action was taken
to set aside the Bosch sale. A few years later, in October 1929,
American Bosch and German Bosch made a "trade agreement"
defining the respective territories of the two firms and the rights to
the use of the Bosch name; and by 1930, German Bosch had again
acquired a majority of the stock of the American Bosch interests.

After the near-disaster that almost lost Bosch the control of the
American properties, the German company got busy to arrange a
better cloak for the future. In 1934, the Robert Bosch firm "sold" the
controlling stock of the American Bosch Corporation to the Men-
delssohn Bank in Amsterdam, Holland, subject to the right of
Bosch to reacquire the stock under certain conditions. The Men-
delssohn Bank then established a Dutch holding company, known
as NAKIB, to hold the shares of the Bosch properties in the United
States, Britain, France and Italy. Two officials of Robert Bosch then
joined the staff of the bank to direct the policies of NAKIB* In
1935, the bank engaged Mr. George Murnane, former vice president
of the New York Trust Company, to become a director and chair-
man of the board of American Bosch Corporation. When the Men-
delssohn Bank went bankrupt in 1939, the liquidators appointed by
the Dutch government found that the American Bosch stock had
been transferred to the New York Trust Company as security for
a loan. The New York Trust Company proposed to sell the stock to
satisfy the debt of the 'owner," the Mendelssohn Bank.

At this point Dr. Erich Rassbach, director of Robert Bosch of
Stuttgart, revealed that any transfer of control over the American
company really required their consent, because all the oper2itions
of the American Bosch Corporation depended on patent licenses
granted to them by the Stuttgart company. If these licenses should
be withdrawn, American Bosch Corporation would be "an empty
shell," and the stock worthless. Thus, without having legal owner-
ship of the stock of American Bosch, German Bosch had the com-
pany under control just as effectively as if the stock were in the
safe at Stuttgart.

On May 6, 1940, just before the German blitz swept into Holland,
the American Bosch shares were "sold" with the permission of

250 ALL HONORABLE MEN

Stuttgart to the Enskilda Bank o£ Stockholm. The bank put them
under the control of a financial holding company named ''A.B.
Investor/* The transfer agreement created an option to permit
Robert Bosch of Germany to repurchase the stock two years after
the end of the war. At that time Marcus Wallenberg, who, with
his brother, Jacob, controls the Enskilda Bank, was also acting
simultaneously as agent of the German Reichsbank in other
msttters.

In November 1940, a voting trust agreement was set up in the
United States under which George Murnane was designated by the
Wallenbergs' Enskilda Bank as tlie sole voting trustee with complete
power to vote the American Bosch stock at stockholders' meetings
in the United States. The voting trust arrangement provided that if
George Murnane should die, his successor should be named by John
Foster Dulles, senior partner of Sullivan & Cromwell, the law firm
which represents the Wallenbergs and the Enskilda Bank in the
United States.

While all this legal hotwork was keeping the legal ownership of
Bosch properties abroad in. the technical custody of neutral citizens,
Bosch of Stuttgart was not hampered in its control over the use of
patented Bosch technology by non-German companies. Even as late
as June 1941, American Bosch was the only source of supply of
fuel injection equipment for naval diesel engines. The United States
Navy wanted to develop a second source of supply, but found that
American Bosch had no right to grant a license to any other com-
pany to make this patented equipment. The American Bosch com-
pany informed the navy that no such license could be granted with-
out the consent of the Robert Bosch firm at Stuttgart.

Finally, on May 19, 1942, the controlling shares of American
Bosch Corporation, nominally held by the Swedish firm, A.B.
Investor, were taken over by the Alien Property Custodian. On
December 29, 1942, an antitrust action against the American Bosch
Corporation was concluded by a court order canceling all agreements
between American Bosch Corporation and Robert Bosch of Stutt-
gart, arising out of their ''unlawful combination and conspiracy to
suppress, limit and control competition between themselves through-
out the world.'* American Bosch Corporation was required to issue

THE NINETEEN 25I

licenses under all of the Bosch patents to American manufacturers
without royalties [or the duration of the war.

The third case, that of the VKF bearings combine, also involved
cloaking operations and the Enskilda Bank. One of the mysteries
of World War 11 has been the unexplained international relations
of the Swedish industrial organization, A.B. Svenska KuUager-
fabriken, known as SKF, Sweden's largest industrial concern and
the world's largest manufacturer of ball and roller bearings. The
principal Swedish interest in SKF is held by the Wallenbergs
through their Enskilda Bank and its investment subsidiary, A.B.
Investor. The actual extent of German or other foreign control,
either directly or through the Wallenbergs, has not been disclosed.

For many years the active management of SKF was in the hands
of Sven Wingquist, the founder of the firm. In 1941, he gave up the
day-to-day management but remained as chairman of the board.
From time to time, beginning in 1933' and 1934, Sven Wingquist
came into the world spotlight as one of a colorful clique of inter-
national adventurers, who gained special notoriety by their buzzing
around Edward VIII at the time of his abdication in 1936. They in-
cluded Axel Wenner-Gren, the yachtsman; Charles Bedaux, in-
ventor of a labor speed-up system; and Jacques Lemaigre-Dubreuil,
French banker and vegetable-oil man of West Africa.

Axel Wenner-Gren w^ill be remembered as a yachtsman with a
remarkable record of coincidences. He cruised the seas throughout
much of the war in his yacht, the Southern Cross, and turned up
to rescue survivors of German submarine attacks, beginning with the
German sinking of the British ship Athenia in 1939 and continuing
through the Caribbean submarine campaign of 1942. At the time,
some people speculated about how one yacht could happen along
so often when a submarine spotted a vessel; but the coincidences
were never explained.

Charles Bedaux, inventor of the "Bedaux System," a speed-up
system for forcing higher labor output in factories, was an American
citizen who spent most of his life abroad. The Duke and Duchess
of Windsor were married in the Bedaux chateau on the Riviera.
Bedaux was captured by American forces during the invasion of
North Africa while busy building a pipeline to bring vegetable oil

252 ALL HONORABLE MEN

from Lemaigre-Dubreuil's West African domain to the Mediter-
ranean to help relieve the critical German shortage of fats and oils*
Bedaux committed suicide in the federal jail at Miami, while await-
ing trial for treason.

Svcn Wingqulst and Axel Wenner-Gren had taken an active
part after World War I in the German plans to mask the owner-
ship of subsidiaries abroad. To get around the Versailles Treaty,
Brms like Carl Zeiss, manufacturers of military optical equipment,
set up branches such as the "Nedinsco" firm at Venio in the Nether-
lands and carried on as before. The Krupp firm did the same in
Spain, Sweden, and other countries.

In 1934 the Swedish government discovered that Krupp controlled
a block of shares in the Bofors steel and munitions works through a
Swedish dummy holding company called ''Bolorsintcressenten,''
Sven Wingquist, who was chairman of the board of the Bofors steel
and munitions works, was one of the two Swedish citizens who
had been voting this stock for Krupp at stockholders' meetings.
The Krupp concern controlled approximately one third of Swedish
Bofors in this manner and had maintained enough additional
voting strength through Axel Wenner-Gren to control the affairs
of Bofors.

Sven Wingquist and the Wallenbergs have always claimed that
SKF is Swedish-owned and Swedish-controlled. Up till 1928, no
one had any reason to doubt this assertion. But in 1928 and 1929,
SKF was involved in a series of moves whereby all but one of the
important bearing firms in Germany, accounting for 60 per cent of
Germany's bearing industry, were merged into a new concern, the
Vereinigte Kugellagerfabrikea A.G., known as VKF. When these
moves were completed, SKF showed on the record as the owner of
99,7 per cent of the stock of German VKF. The mystery is how
SKF could possibly have managed to pay the German owners of
the merged firms without giving the Germans either money or some
substantial stock interest in the Swedish firm, SKF» The manage-
ment of Swedish SKF denied that any stock was given to German
interests; but they never explained how the German interests were
paid off.

In a similar deal in 1928 under which SKF had merged and ac-

THE NINETEEN 253

quired the principal French bearing companies, SKF issued
14,000,000 kroner, par value, of new SKF shares which they turned
over to the French interests in exchange for the controlling shares
in the new French concern. This increase of SKF's capital from
92,000,000 to 106,000,000 kroner, by the issue of 14,000,000 to the
French, gave the French interests among them a 13 per cent par-
ticipation in Swedish SKF. In 1929, SKF increased its outstanding
shares by another 24,000,000 at the time it acquired ownership and
control of the German bearing trust, VKF.

At the time of the completion of the German merger, on Septem-
ber 8, 1929, the Frankfurter Zeitung reported that the shares of
VKF would not be listed on the German stock exchange and went
on to say, "However, the shares of the Swedish parent company, of
which a part is already German-owned, will shortly be listed on the
Berlin exchange.'* In 1933, a pamphlet published by VKF explained
the 1929 deal as part of a plan to assure the German firm an in-
creased export market. The pamphlet reported: ''Mainly for this
reason, there developed a voluntary dependence on the international
SKF concern. In spite of this dependence, it was largely German
capital which was interested in the share capital of Vereinigte
Kugellagerfabrikcn A.G.> amounting to RM 30,000,000, because the
former owners are holders of the SKF concern shares and still other
shares are in German private ownership.''

The case of VKF of Germany and its international ties through
SKF of Sweden, posed a problem in the concentration of German
economic power. It was like the case of German VGF and Dutch
AKU in the synthetic textile field. While the question of German
control as against "neutral** control has never been satisfactorily an-
swered, the ^'neutral" firm is unquestionably the legal owner of im-
portant interests in the United States which were immune from
seizure by the Alien Property Custodian during World War IL In
the case of SKF, the subsidiaries in the United States are SKF In-
dustries, Incorporated, of Philadelphia and SKF Steels Incorporated,
of New York.

In 1940^ Marcus Wallenberg came to the United States to buy up
German securities in the American market, presumably for the
Reichsbank, as part of the German Economic Ministry's "repatria-

254 HONORABLE MEN

tion" program to buy out Germany's external debt at a few cents on

the dollar. He arranged at that time to set up a voting trust which
conveyed nominal control of SKF's subsidiaries in the United States
to William L. Batt as voting trustee. Mr. Batt is president of SKF
Industries, and, during the war, served as deputy chairman of the
War Production Board. It was Mr. Batt who called at my office in
Berlin in the autumn of 1946 soon after the press reported rumors
that we were considering action to divorce German VKF from its
international partners. He had come to Berlin to confer with General
Draper on matters of German recovery; but he also wanted to be
assured that nothing would be done to disturb the Swedish interest
in the German company, or to reduce the value of the holdings by
permitting removal of any of the plants from Germany as repara-
tions.

It happened that two thirds of Germany's entire bearing industry
was concentrated in a single group of four factories at Schweinfurt.
Three of them, accounting for 36 per cent of Germany's productive
capacity, were owned by VKF; and one, accounting for 30 per cent
of German capacity, was owned by the only remaining large inde-
pendent, Fischer A.G. When American air forces bombed Schwein-
furt during the war, in an effort to knock out this strategic point in
German industrial production, Schweinfurt was discovered to be one
of the most heavily defended spots in Germany. German defenses
inflicted a loss of fifty American heavy bombers in one raid alone.
When these raids temporarily knocked out Schweinfurt, the effect
was largely nullified by shipments of bearings from SKF in Sweden.
A special United States mission was sent to Sweden to buy off SKF's
production; but it was only partially successful in this attempt to cut
SKF shipments. When the time came to give up German plants as
reparations after World War 11, a large part of the plant of the
independent bearing firm, Fischer A.G. at Schweinfurt, was packed
up and shipped off, leaving VKF with substantially a loo-per-ccnt
monopoly of German bearing production.

The work o£ preparing specific recommendations for rearranging

the affairs of these combines illustrated what Attorney General
Biddle had told the Kilgore Committee in 1944. Reminding the

THE NINETEEN 255

Senate committee that actual reorganization plans would have to
be carefully drawn, he had said:

"Such plans would have to be developed to fit the particular com-
panies to which they are to apply. Even with the kind of adequate
information which can be obtained only during a period of occupa-
tion, it would take a long time to work them out and each one of
them would raise a variety of policy problems. It is not simple. Yet
this is the kind of program which it will be imperative to follow if
we arc to guard our own security.**

While most of the professional members of the Decartelization
Branch staff worked on different parts of the Henschel, Bosch, VKF
and Good Hope cases, the new chief, Phillips Hawkins, worked out
the procedures to be followed in seeing each case through. Members
of the branch became a little concerned when a special board was set
up to review the extensive findings of fact in the Henschel investiga-
tion. A group from the Industry Branch and other parts of the
Economics Division was sent on a special trip to Kassel to go back
over the entire ground already covered by the Decartelization
Branch before the Henschel company could even be served with an
order to *'show cause'* why it should not be reorganized. The rules
already called for reviews and appeals, after a case had been argued
and before the company could be ordered to dispose of any property.
The idea of *Veviewing" the simple proposal to start a case looked
unnecessarily complicated.

Even so, by March i, 1948, four "staff studies" had been completed
in the test cases. The action recommended in each case was the issu-
ance of a military government order requiring the cotnpany to an-
swer the charge that, for reasons stated, it represented an excessive
concentration of economic power.

At the same time, General Clay made the long overdue move to
put the cartel-control work into a separate division. A general or-
der effective March i created a Property Division directed by Phil-
lips Hawkins. Richardson Bronson became chief of the Decartel-
ization Branch in the new division. The Army newspaper, Stars
and Stripes, indicated that the purpose of the order was to group
together those organizations, such as property control, restitution,
reparations and decartelization, which were slated for early liquida-

256 ALL HONORABLE MEN

tion. Most members of the branch assumed that this statement was
a reporter's error, since the decartelization program had not yet
started.

Mr. Bronson, as my deputy control officer for I.G. Farben, had
shown little enthusiasm for the Farben reorganization, but in gen-
eral had followed my specific instructions without protest. In his
new role as chief of the branch, however, he commenced by an-
nouncing to the stafJ that he had been reluctant to accept the
appointment. He had not previously been in sympathy with de-
cartelization; but the way the work was shaping up had convinced
him that it was after all a program to which he could subscribe^
During the following week the stafi waited for approval of the "stafE
studies," which would give the green light to begin proceedings.

Instead of a green light, they got fireworks. On March 11, 1948
Mr. Bronson called a meeting of all the members of the branch.
He had on his desk a memorandum which he said General Clay
had approved, but which he refused to show to anyone. The memo-
randum set forth a new policy that was startling. It proposed to
exempt from reorganization all enterprises in the field of capital
goods and heavy industries. Action in the future w^as to be con-
fined to enterprises having a monopoly in consumer goods. No
action was to be taken against VKF, the bearings trust. The case
againsi Bosch was to be suspended if not dropped entirely.

Even the Henschel case was to be dropped, although the British
in the meantime had concurred in finding the Henschel family
holdings to be an "excessive concentration" within the meaning
of the decartelization law* A report to the Secretary of the Army
signed by Mr. Hawkins on September 23, ig4y had said: *The
combine cannot be left intact for the reason that its position in
the German industrial world was so powerful that it could dictate
the terms under which it would do business, that it was beyond the
reach of competitive influence; and that its size and influence ren-
dered it impervious to the conditions of free enterprise."

The branch in the future, according to Mr. Bronson, was to look
for monopolistic and unfair trade practices in the fields of consumer
goods and merchandising. Such practices had been prohibited un-
der Section 2 of Law No. 56, with no distinction made between

THE NINETEEN 257

heavy and light industries. Mr. Bronson went on to say that no re-
organization of large combines under Sections 3 and 4 of the law
would be undertaken unless such combines were found in the con-
sumer-goods field. In any future cases under Sections 3 and 4 a
"rule of reason" would be the guide, in place of the ^'arbitrary
standards" of Law No. 56. No reorganizations would be allowed to
affect 'Vertical integrations*' of industry from raw material to
finished product, but only "horizontal integrations" of plants in the
same field of production. Finally, those large enterprises against
which no action was contemplated under this new policy must be
given a "clean bill o£ health*' so that they could stop worrying about
the possibility of legal proceedings. Actually investigations up to that
time had revealed only four firms in the consumer-goods fields with
enough economic or political influence to deserve so much as pass-
ing mention: the Reemtsma cigarette monopoly, the German match
monopoly, the South German sugar trust, and the Schultheiss
brewing firm.

Mr. Bronson announced that approximately one fourth of the
staff would be laid off. The reason given was that the organiza-
tion and working assignments must be changed to meet the re-
quirements of the new policy. Those remaining would stop work
on the heavy-industry combines and direct their attention to spot-
ting unfair trade practices. Four persons would work for a short
time clearing up all pending matters in relation to heavy or capi-
tal goods industries.

Shocked by this series of statements in such open contradiction
to General Clay's position during the previous two years, nineteen
members of the Decartelization Branch, all but two of the profes-
sional staff then in Berlin, signed a memorandum to General Clay
informing him of the statements Mr. Bronson had made. The mem-
orandum was submitted for whatever clarification General Clay
might consider necessary. A few days later, on March 17, the same
nineteen prepared another memorandum describing a series of re-
visions and counterrevisions of Mr. Bronson*s oral orders which
followed his conversations with Messrs. Hawkins and Wilkinson,
and the publication in the Netif YorJ{ Times of a series of dis-
patches by Delbert Clark describing the new policy.

258 ALL HONORABLE MEN

Both of the memoranda to General Clay pointed out that Mr.
Broiison's orders amounted to a drastic amendment or nullifica-
tion of Law No. 56, which the staff was supposed to enforce.
Mr. Bronson's orders were without written confirmation of any
sort. "The effect of such an ^amendment/ we believe, would be to
leave the fundamental concentrations of economic power intact
while engaging in little more than harassing attacks on the smaller
companies. This, of course, aside from being in contravention of
the Law would tend to make its enforcement unpopular and com-
pletely ineffectual. We also think there are very serious objections
to giving immunity to 'vertical integrations* since the Law makes
no such exceptions; we believe that to give a 'clean bill of health' to
subjects of investigation is contrary to all established principles of
law and law enforcement; and we think that being guided by a
'rule of reason' rather than standards in the Law offers many obvi-
ous dangers."

Some members of the Decartelization Branch hoped that once
General Clay saw how the cartel policy was being misinterpreted,
he might do what he had done so many times in the past: bring
the matter up in his Saturday morning staff conference, make the
official position clear, and dress down the men who had twisted the
running orders. These hopes were dampened slightly by the knowl-
edge that changes of viewpoint in Washington would sooner
or later have their effect and that General Clay might find it con-
venient to scuttle the program. There was always the possibility,
which none of General Clay*s statements in support of decarteliza-
tion had ever quite dismissed, that he had been interested only in
maintaining appearances. So long as there had been danger of
criticism in Congress or in the press it the cartels were allowed to
revive, he had been building a record of public statements in favor
of the anticartel policy, but he had done nothing to override the
steady sabotage.

The professional staff did not know until several days after Mr.
Bronson s bombshell that on Sunday, March 7, Messrs. Hawkins
and Bronson had talked with General Clay in his office about
changing the decartelization program. Mr. Hawkins had sum-
marized the results of that conference in a memorandum which

THE NINETEEN 259

was then discussed by General Clay with Wilkinson, Hawkins
and Bronson on March 9. It was this Hawkins memorandum of
March 9 that Mr. Bronson had on his desk, but refused to show,
when he talked to the staff on March 11.

At the conference of March 9, General Clay had read the mem-
orandum, said that he generally approved of everything it con-
tained, and agreed that it should serve, without being published as
such, as the guide to the activities of the Decartelization Branch.

Mr. Bronson reported the matter in a private memorandum for
his own files. General Clay had "realized that the dissemination of
this memorandum prepared by Mr. Hawkins, to which he infor-
mally agreed, would be disturbing to those in the Decartelization
organization who had had strong antitrust background and we could
expect considerable remonstrance and bitter feeling, but that he
expected me to keep such individuals in conformity with his poli-
cies and the policies of OMGUS, and that if they did not conform
in spirit, to have them replaced by individuals who were in agree-
ment with such a program; that if I found that I had released too
many people and I needed capable personnel, that I could always go
back to the United States and bring back such personnel as were
capable of doing the job. . . . General Clay stated that he realized
that when this Program was made pubhc, there would be a
scream to the high heavens from the strong antitrust group, but that
there had been similar screams before as exemplified by the sound-
ings-off of Martin back in the States, but that the screams had come
and gone and that probably there would be not much more major
interest. . ,

The professional staff of the branch had no knowledge of these
conferences. They dispatched their joint memoranda to General
Clay and sat back waiting for the lightning to strike. Late in the
afternoon of March 22 ail nineteen were summoned to a meeting
with General Clay in the big conference room around the hollow
square tabic.

As the members were assembling in the conference room, Alex-
ander Sacks, the only one left of the three of us who started on the
venture in 1945, turned to Virginia Marino, another former mem-
ber of the Economic Warfare Section, and remarked that Bronson

26o

ALL HONORABLE MEN

must be serving his own interests because General Clay could not

possibly have approved the new policy. She replied that Bronson
would not dare to fabricate the story that his orders came from Gen-
eral Clay, and besides, he had shown no evidence of having a per-
sonal iron in the fire. Johnston Avery, who as the assistant chief in
charge of enforcement had been bearing the brunt of the argument
over enforcement changes, came in and sat down at a corner of
the table on the side opposite General Clay's chair. His calm man-
ner showed his belief that Clay would set matters right. Captain
Laurent, who as a TVA lawyer had had a ringside seat for that
organization's fight with the fertiHzer trust, and whose staff had
prepared the Henschel, Bosch, VKF and Good Hope cases, was
confident that the four test cases were so thoroughly prepared that
General Chy could not reject them all at once without announcing
an obvious reversal of policy. The general feeling that Bronson had
been offside seemed to have further support in the fact that Bron-
son had hurriedly departed for the United States a few days before,
at the height of the controversy.

General Clay entered the room flanked by Lawrence Wilkinson
and Phillips Hawkins. He opened the meeting with the statement
that Bronson had no responsibiUty in the matter of recent policy
statements. The decisions were those of General Clay himself. He
had rejected the Henschel case because of the company's impor-
tance to the rehabilitation of Europe, and because the combine had
only one customer, the German State Railway. This statement made
It clear that General Clay had not read or had not understood the
findings of fact in the Henschel case. The State Railway pur-
chased locomotives from the standard-gauge railway locomotive
shop, which was only one part of the vast holdings. General Clay
went on to say that he had rejected the VKF case because VKF had
already, at the insistence of the Decartelization Branch, transferred
some idle equipment to the independent producer, Fischer A.G,
This transfer of idle machinery, according to Clay, had ''destroyed
the monopoly." Further than that he would not go. It would not
be possible to approve the severance of VKF from the ownership
of "neutral" Swedish SKF.

General Clay said he had accepted part of the plan in the Bosch

THE NINETEEN

261

case, to cut off the few small subsidiary enterprises unrelated to the

company's main fields of activity; but he could not agree to dis-
turb the Bosch control of the central research laboratories and the
plants in its main fields, electrical equipment and fuel injection. In
the steel industry, he said, the Good Hope case was premature until
a decision should be made on the number and kind of competing
companies to be created of the properties of the six big steel com-
bines. In general, every case in the future would be examined by a
"rule of reason.'* Since no two people would necessarily agree on
the conclusions to be drawn from the facts in each individual case,
the final decision would be made by General Clay himself.

As the Military Governor went on with his statement, the listen-
ers exchanged looks of incredulity. Johnston Avery's face looked
drawn. His jaw dropped. Throughout the first part of the meeting
he did not speak, but sat taking notes. Some of those around the
table, including Captain Laurent, began to ask questions. Others
were Charles A. Dilley, former professor and student of antitrust
legislation; Richard R. Rathbun, who later returned to the United
States as a lawyer for the Antitrust Division; Irene Opton Ball,
wife of the director of the Finance Division and a former financial
analyst for the Board of Economic Warfare; John J. Barron, for-
mer FBI agent; and Samuel L. Kobre, attorney. Kathryn R. Beaty,
former secretary to Wendell Berge in the Antitrust Division, and
Charles Baldwin, editor of the four-volume report on cartels and
combines, and others watched and listened. At first no one attempted
to answer back or argue, beyond askijig pointed questions. Finally
Johnston Avery gathered up his notes and edged forward in his
chair, preparing to speak.

General Clay had just replied to one question by saying that
the steel industries in Germany must be big enough to "live" in
competition with the steel industries of other countries. He went
on to say that the German steel firms must operate at a profit, so
as to bring the owners a "reasonable rate of return on investment.'*

At this juncture, Alex Sacks raised a po'mL The history of the
Ruhr steel industry, which would long since have been bankrupt but
for a large government subsidy, emphasized the absurdity of guaran-
teeing a "reasonable rate of return on investment" to the industry

262

ALL HONORABLE MEN

in a competitive market. What right did the owners of these com-
bines have to this kind of consideration? Suddenly General Clay
cut in. His face clouded up. His fist banged on the table. "I did
not come here to be lectured on decartelization." He looked around
the table. In a controlled voice he finished off: ''I hope that no one
feels he has to leave/' He paused. *1 hope that everyone viall feel
tliat he can remain and work under the policy as I have stated it.
Good night, gentlemen!" He rose and left the room.

The results came rapidly. Johnston Avery and Frank Laurent
tendered their resignations. These were accepted. The professional
staff was cut. In all, ten positions were abolished in the first reduc-
tion of force under the "new policy.** Other cuts came later. In the
end this left a handful of Americans responsible for the trade prac-
tices of twenty million Germans in the United States zone.

Major General George P. Hays> the Deputy Military Governor,
had views of his own on what should happen to people who oppose
cartels. On the floor of the House of Representatives on March 25,
1948, Representative George G. Sadowski of Michigan referred in
the course of a debate to the "nineteen courageous men and women"
of the Decartelization Branch who had asked General Clay to
clarify the cartel policy in Germany. Representative Sadowski had
introduced into the record a copy of the memorandum of March 13,
1948- There was no indication that any one of the nineteen, let alone
all of them, had provided the congressman with a copy of the
memorandum. When General Hays received a copy of the Congres-
sional Record he pinned a note on it and sent it to Phillips Hawkins.
The note read: "Please have read by each of 19 'courageous' non-
conformists. Mr. Sadowski may consider them courageous, but I
consider them disloyal employees who should be treated accord-
ingly.**

The personnel office thereupon put a note in the personnel file
of each of the signers, stating that no promotion, transfer, or other
change of status was to be made without clearance from higher
authority. Later, General Clay tried to apologize for his deputy's
remark and General Hays offered to write a letter to any of the
nineteen who requested it, saying he did not mean they were sub-
versive. But the ''disloyal'* label continued to dog the tracks of all

THE NINETEEN 263

nineteen, not only because denials never catch up with charges but
also because government files never give up their papers.

What had been announced as a law to bring about decentraliza-
tion of the Germany economy, and to end the power of the heavy
industry trusts and combines, was almost overnight transformed
by verbal order into a law for limited policing of business practices,
with no fundamental change in the business structure to be policed.
Not only was the main job left undone, but public servants were
damned for having tried to do it.

CHAPTER 20

The Hand in the German Glove

AFTER two and a half years, I came back from Germany quite well
aware that I had been wrestling with a buzz saw. We had not been
stopped in Germany by German business. We had been stopped in
Germany by American business.

The forces that stopped us had operated from the United States
but had not operated in the open. We were not stopped by a law
of Congress, by an executive order of the President, or even by a
change of policy approved by the President or any member of his
cabinet. In short, whatever it was that had stopped us was not "the
government." But it clearly had command of channels through
which the government normally operates.

The relative powerlessness of governments in the face of growing
economic power is of course not new. Between the two world wars
the outstanding development ia world economics was the division
of territories and markets, by private agreement, among the largest
corporations of Britain, Germany and the United States, with minor
participations by their counterparts in France, Italy and Japan. Na-
tional governments stood on the sidelines while bigger operators
arranged the world*s affairs.

In the United States in 1933 President Roosevelt tried to estab-
lish a government powerful enough to talk back to the private
operators. For a time the Roosevelt government asserted its right
to control business activities wherever they might affect the public
interest. But with the outbreak of war, men who had been on the
outside during this New Deal era, cursing "that man'" from their
chairs in the Union League Club, had to be called to Washington*

THE HAND IN THE GERMAN GLOVE 265

The government of the United States found that it was in no posi-
tion to fight a war unless it made a deal with the powers in control
of the country's productive capacity.

With World War II "business" moved into "government/* Men
from high positions in investment banking and in the management
of the top industrial holding companies came to Washington to
guide the war production program. Later they moved up to high
policy-making positions. Especially noteworthy was a group drawn
from the Morgan companies and their pilot-fish, the bankers of the
Harriman firm and the business-management specialists of Dillon,
Read & Company. James V. Forrestal, former president of Dillon,
Read, moved from Undersecretary of the Navy, a position largely
concerned with co-ordination of industry programs to speed materiel
procurement, to Secretary of Defense. Robert A. Lovett, former
partner in Brown Brothers, Harriman & Company, moved from
Assistant Secretary of War to Undersecretary of State. W. Averell
Harriman himself started as a "liberal businessman'* sent on a
mission to Moscow in connection with Lend-Lease. He later be-
came Ambassador to Russia, Ambassador to England, Secretary
of Commerce, and finally roving ambassador for the Marshall Plan,
all the while retaining a limited partnership in the Brown Brothers,
Harriman firm.

Is it possibly a coincidence that Philip D. Reed, Lewis H. Brown,
Frederick L. Devereux, and some of the others already mentioned
in connection with the lapse of our German policy, have had in
common their past experience with the financial and industrial
concerns of the same investment banking groups?

In 1942 the Truman Committee investigated the performance of
a number of dollar-a-year men, including Mr. Reed, and had this
to say about their failure at that time to carry out certain govern-
ment policies which affected the larger firms: "The committee be-
lieves that most dollar-a-ycar and 'without compensation' men are
honest and conscientious, and that they would not intentionally
favor big business. However, it is not their intentional acts that
the committee fears, but their subconscious tendency, without which
they would hardly be human, to judge all matters before them in
the light of their past experiences and convictions."

266

ALL HONORABLE MEN

These men, with all their "past experiences and convictions'*
found a ready-made kit of tools left over from the cartel era of the
twenties and thirties. The failure of military government to do
anything about removing the tools meant that the "subconscious
tendency" of these like-minded men could find a ready expression
in all the machinery of collaboration which was waiting to be
revived between German and foreign business groups*

Some of the machinery of collaboration had been designed with
considerable skili. In the twenties, for example, the elder Hugo
Stinnes, founder of the Rhenish-Westphalian Coal Syndicate and
head of the Stinnes coal, steel and shipping interests, set up two
new corporations in the United States. These two corporations be-
came the legal "owners" of all the Stinnes properties in Germany.
Both Hugo Stinnes Industries, Incorporated, and the Hugo Stinnes
Corporation, were incorporated under the laws of Maryland, with
their head oifices in New York. The elder Stinnes borrowed heavily
in the United States in the 1920's by selling bonds to the public,
and later defaulted on the loans. But since the assets of the two
"American** Stinnes companies consisted almost entirely of the
shares of stock they held in the German Stinnes corporation, there
was little the creditors could do to realize on the bonds.

Before World War II, the shares of the German Stinnes held
by the Stinnes companies in the United States represented a major-
ity of the outstanding stock of the German companies. When the
war came, the German companies, now headed by Hugo Stinnes,
Jr., developed a hedge to take care of cither a German defeat or a
German victory. To prevent seizure of the properties by the German
Custodian of Alien Property because of their "American'* control,
Stinnes called a meeting of the German stockholders, representing a
minority of the outstanding shares, to approve an increase in the
outstanding stock of the German company. The stockholders then
sold all of these new shares to themselves. As a result, the blocks of
shares owned by the American companies no longer represented a
majority of the outstanding stock. This made the Stinnes companies
German-controlled and not subject to seizure. In the event of a
German victory, all was well. But if Germany lost the war, the
holders of the American stock could go to court and have the action

THE HAND IN THE GERMAN GLOVE 267

of the German stockholders rescinded because a majority of the
stock had not been represented at the meeting. The issuance of
the new stock, which had reduced the proportionate holdings of the
American companies, would be declared illegal. That is actually
what happened. In 1948, a German court held that the Stinnes inter-
ests in Germany were "American property." Since that time the
Stinnes companies have had the preferred status that goes with
"foreign*' ownership in postwar Germany.

The preferred status of "foreign" companies has provided an im-
portant part of the new design that is shaping the international eco-
nomic balance. What was hit-or-miss in the "Christmas-tree" econ-
omy of the years after 1945 in Germany, from the standpoint of
the German national economy, is not necessarily haphazard from
the standpoint of power concentrations in international economic
affairs. German firms with international ties have become small
cogs in a larger machine. At the same time, new policies have been
developed to promote the "integration and co-ordination" of the
German internal economy into a more closely controlled mecha-
nism.

On May 15, 1948, two months after disagreements over the cartel

policy had come to a head, Leland E. Spencer, head of General Clay^s
Commerce and Industry Group, a part of the Anglo-American con-
trol organization for Bizonia, presented to General Clay a memo-
randum proposing a "revised German economic policy " Mr. Spen-
cer proposed to establish a series of privately controlled German
industry associations, each with its headquarters in the "natural
center" of the industry. Membership by German companies in such
associations would be "voluntary"; but the association would be
given power to act as a central control and co-ordinating point for
all companies in the industry, whether they were members of the
association or not. The association would require all companies to
submit production data and other information, and would allocate
scarce materials among the different companies on the basis of their
"relative position in the industry," Discrimination by an associa-
tion against nonmembers, or between members, would be pre-
vented by establishing an appeals board in the German Bizonal
Economic Administration. The Economic Administration would

268

ALL HONORABLE MEN

also serve as a top control and co-ordinating point for the whole
hierarchy of associations.

This grant of regulatory powers to the industry associations, ac-
cording to Mr. Spencer, would "remove governmental interference
in business," a change which he described as "a must!*' General
Clay approved this policy on May 21, 1948, thereby bringing to an
end the earlier policy adopted in 1945 which had forbidden turning
over regulatory powers, which were basically governmental powers,
to privately organized industry groups. In 1945 the bad example of
the Reichsgruppe Industrie and its system of industrial "self-
government'* had been enough to show the need of keeping gov-
ernmental powers in the hands of a government. But the era that
followed was one of quiet forgetfukess. General principles, based
on previous experience of the way governments have broken down,
gave way before the demands of * efficiency"; and German admin-
istrators or even private organizations were given the power to
make their own rules as they went along.

The breakdown or abandonment of time-tested principles was
an inside job. While General Clay himself assumed full respon-
sibility in March 1948 for overruling reorganization plans in the
case of the heavy-industry combines, his decision followed after
several conferences within the Economics Division on policy ques-
tions. Early in 1948, as the test cases for reorganization under Sec-
tion 3 of the decartelization law were being made ready, Harald
Hamberg and two other gentlemen from Swedish SKF at Stock-
holm arrived in Berlin to discuss the future of the German VKF.
Harald Hamberg was the former head of German VKF who, in
1941, succeeded Sven Wingquist as head of Swedish SKF. Hamberg
and his two companions lived at the Wannsee Officers Club during
their stay at Berlin and traveled freely to Schweinfurt to confer with
their German managers.

When Robert A. Nitschke, chief of the Cartels Section of the
Antitrust Division in Washington, arrived in Germany to confirm
some documentary details of the government's antitrust case against
the SKF combine, he was prevented for several days from making a
trip to Schweinfurt to examine the records of VKF. By the time Mr.
Nitschke reached Schweinfurt the gentlemen from Stockholm had

THE HAND IN THE GERMAN GLOVE 269

already had three or four days to review the records themselves.

The reason for the delay in Mr. Nitschke's case was an argument
by several members of the Economics Division that it would be
unfair to permit a federal agency to have any freer access to the
records of a German company than they would have to the rec-
ords of a company in the United States. They pointed out that in
the United States, if a company does not volunteer to make its
records available, the issuance of a subpoena requires the action
of a grand jury, based on a "reasonable suspicion** that a criminal
law is being violated.

General Clay did overrule his Economics Division on this point
of protocol; but the Economics Division's excessive caution may
have accounted for the fact that the needed records were reported
"lost in the bombing." In a previous case in 1946, involving docu-
ments from the Krupp files to be used in the government's success-
ful prosecution of the case against General Electric and the tungsten
carbide monopoly, we had readily secured photostatic copies of im-
portant documents. The British control ofScer in charge of the
Krupp works had raised no objection to the invasion of the "pri-
vacy" of the Krupps.

The decision to drop the VKF case, which was confirmed by
General Clay in March 1948, had been first proposed some six weeks
earlier by Mr. Wilkinson following conferences in his office with the
SKF men from Stockholm. No one from the Decartelization Branch
was called into those conferences. The staff of the Decartelization
Branch learned of the agreement reached by Wilkinson with the
representatives of Swedish SKF when Richardson Bronson circu-
lated copies of a memorandum he had written to Lawrence Wil-
kinson, outlining his understanding of Wilkinson*s instructions for
disposal of the VKF case. The substance of the memorandum was
that VKF would be expected to sell two thousand surplus machines
to the Fischer bearing works, but that since this action would
allow Fischer to resume limited production and therefore would
break the loo-per-cent monopoly position of VKF, no further
proceedings would be undertaken against VKF. Also Swedish SKF
would be informed that the military government had no intention
of disturbing SKF*s ownership and control of German VKF.

270 ALL HONORABLE MEN

The Bosch case ran a slightly different course. While the De-
cartelization Branch was making its study of all the facts and pre-
paring its recommendations, a retired American general, Arthur C.
Wilson, arrived at Berlin in a private capacity as representative of
a Swiss firm which had an exclusive agency agreement with Bosch*
General Wilson had previously served in North Africa and Italy,
and had commanded the Continental Advance Sector of the Sixth
Army Group in the invasion of southern France. Despite his lack
of any official status, and his position as representative of a firm
interested in the Bosch case, General Wilson was given an office in
the Economics building at Berlin, and the use of an official staff car.
Members of the Decartelization Branch received instructions to
consult General Wilson on all phases of the proposed reorganiza-
tion orders in the Bosch case, and to clear all such items with
General Wilson before attempting to take them any further up the
line toward General Clay s desk.

It is not a crime under United States law for an army officer
drawing retirement pay to represent a client before any agency or
department of the government, unless he receives a fee for so doing.
Section 113 of the Criminal Code does provide punishment for any
officer in the employ of the United States — which has been held to
include an officer on the retired list of the army drawing retire-
ment pay — who "shall directly or indirectly receive or agree to
receive any compensation whatever for any services rendered or to
be rendered to any person, either by himself or another, in rela-
tion to any proceeding, contract, claim, controversy, charge, accusa-
tion, arrest, or other matter or thing in which the United States is
a party or directly or indirectly interested, before any department,
court martial, bureau, officer, or any civil, military or naval com-
mission whatever/*

Likewise, General Clay's deputy, General Hays, who conducted
meetings on the Bosch matter at which General Wilson represented
the position of Bosch, was not acting illegally unless General Wilson
was receiving compensation from a client or from some other per-
son. Section 332 of the Criminal Code applies only to one who
"aids, abets, counsels, commands, induces or procures" the com-
mission of an offense defined in a law of the United States.

THE HAND IN THE GERMAN GLOVE 271

However, Genera! Clay did seem to entertain some doubts about
the propriety of anyone*s transacting private business while enjoy-
ing the privileges of a distinguished unofficial visitor. A few weeks
after General Wilson's participation in the Bosch case was dis-
closed, General Clay, without naming names, published an order
forbidding former military and civilian members of the occupa-
tion forces to enter Germany for private business purposes until
two years after the termination of their service. He had been
"shocked" to learn that one visitor had transacted private business
while enjoying the status of a house guest of the Military Governor.

Despite any questions General Clay may have had about Gen-
eral Hays's handling of the Bosch matter, and General Wilson*s
participation on behalf of Bosch, the treatment of the case itself
was not materially changed. After General Clay had disapproved
all the test cases, including Bosch, in March 1948, there was some
unfavorable comment in the United States, particularly in Congress.
Later, General Clay directed that the Bosch case should be re-
examined. But in the end the Bosch firm suffered reorganiza-
tion only to the extent of having one plant group, out of the many
it controlled, slated for transfer to new ownership. Bosch retained
control of the technology and know-how, as well as the patents
accumulated on the strength of its monopoly position, and the con-
trol of the research and development laboratories. In addition,
with the help of General Wilson, the Bosch firm got military gov-
ernment permission in July 1948 to enter into an "exclusive agency
agreement" with a Swiss trading firm, the Industrial Products
Trading Corporation, of Zurich.

The Industrial Products Trading Corporation, formed for the
purpose of buying industrial products from German companies and
selling them in world markets, was owned jointly by General
Wilson and two Greeks, the Ghertsos brothers. The latter had owned
the Bosch agency in Greece for twenty years before the war. They
made a loan of 33,000 Swiss francs to General Wilson to enable
him to buy his one-third share in the new Swiss company. The
so-called "Bosch-Swiss** agreement made the Swiss firm "sole and
exclusive sales and service agents** in the following countries: Argen-
tina, Brazil, Bulgaria, Czechoslovakia, Denmark, Greece, Hungary,

272 ALL HONORABLE MEN

Iceland, Iraq, Mexico, Panama, Portugal, Roumania, Sweden,
Switzerland, Turkey and Yugoslavia. This agreement covered any
and all Bosch products, including fuel-injection equipment, auto-
motive and industrial electrical equipment, refrigerators, electric
tools, and other products of the Bosch line,

Richardson Bronson and Phillips Hawkins approved this Bosch-
Swiss agreement without obtaining the concurrence of Brigadier
Oxborrow, the British decartelization chief, as required by the rules
Mr. Hawkins himself had drafted. No one had fully investigated
charges that the Industrial Products Trading Corporation of Zurich
was, in fact, a Bosch dummy with the controlling interest held by
the Ghertsos brothers for the beneficial interest of German Bosch.

Another curious feature of the Bosch-Swiss agreement was that
Bosch agreed to sell its products to the Industrial Products Trad-
ing Corporation at a price payable in German marks far below the
price schedules previously maintained by Bosch. This would enable
the Swiss company to sell the products abroad at considerably
higher prices and to accumulate the excess foreign exchange in
dollars or other hard currencies outside the reach of the occupy-
ing powers.

The "new interpretation" of the anticartel policy was not con-
fined to cases of companies involved with foreign ownership, like
Bosch. On November 10, 1948, the military governments of the
American and British zones published Law No. 75 covering "Re-
organization of German Coal and Iron and Steel Industries." The
new law recited its purposes as follows:

It is the policy of Military Government to decentralize the Ger*

man economy for the purpose of eliminating excessive concentra-
tion of economic power and preventing the development of a war
potential. . . .

Military Government has decided that it will not allow the
restoration of a pattern of ownership in these industries which

would constitute excessive concentration of economic power and
will not permit the return to positions of ownei-ship and control of
those persons who have been found or may be found to have
furthered the aggressive designs of the National Socialist
Party. . . .

THE HAND IN THE GERMAN CLOVE 273

li IS therefore or defied: The enterprises enumerated in Schedule
A of this Law are hereby declared to be excessive concentrations of
economic power or otherwise deemed objectionable and therefore
subject to reorganization within the purview of Military Govern-
ment Law No. 56 Prohibition of Excessive Concentration of Ger-
man Economic Power. The controlling companies in each of
these enterprises shall be put into liquidation forthwith and a
liquidator appointed, or current liquidation proceedings confirmed,
as the case may be. . . .

The schedule of twenty-six top holding companies to be liqui-
dated included twelve steel combines, the Rhenish-Westphalian
Coal Syndicate, and thirteen other operating coal combines. The
twelve steel combines were United Steel, Krupp, Mannesmann,
Klockner, Hoesch, Otto Wolff, Good Hope, Ilseder, the Goring
complex, the Flick complex, the Thyssen group, and the Stinnes
complex. Another schedule listed four public utilities or govern-
ment-owned industrial combines whose assets were to be seized,
including the Rhenish-Westphalian Electric Company, and the
government-owned United Industrial Enterprises, Incorporated.

To carry out the changes in the ownership and management of
the steel firms. Law No. 75 provided that: ''A Steel Trustee Associa-
tion consisting of German nationals shall be established for the
purpose of assisting in decentralizing and reorganizing the iron
and steel industry. The members of the Association shall be ap-
pointed by or under the authority of Military Government, after
consultation with the appropriate German bodies."

General Clay turned over to the Germans themselves the job
of picking twelve German trustees to make up the Steel Trustee
Association. The assignment fell in the first instance to the Ger-
man president of the executive council of the Bizonal Economic
Administration, Dr. Hermann Puender. In January 1949 Dr. Puen-
der asked trade-union leaders to help him pick the slate of German
trustees. The trade-unionists soon left the conference, after refusing
to accept the Puender slate, which included eight representatives
from among the very combines that were to be "reorganized."

The eight combine men were: Dr. Werner Albert, former Nazi
Party representative on the board of Mannesmann, and a Wehrwirt-

274 HONORABLE MEN

schaftsjuhrcr or **Ieader of the war economy"; Hermann J. Abs, di-
rector of the Deutsche Bank; Heinrich Dinkelbach, managing
director of United Steel and successor to Ernst Poensgen in the
International Steel Cartel; Giinther Henle, grandson of Peter
Klockner, who succeeded Klockner as chairman of the family steel
combine in 1940; Giinther Sohl, Nazi Party representative on the
boards of United Steel, Krupp, and other big steel works; Karl
Barich of the Rhenish AVestphalian Electric Company; Friedrich
Wilhelm Engel, director of Hoesch; and Herbert Mondon, for-
merly of the Goring combine and deputy chairman of the Iron
and Steel Association, Only four of Dr. Puender's twelve came
from outside the top ranks of the big steel combines: Dr. Victor
AgartZj former chief of the Bizonal Economic Administration; Dr.
Heinrich Deist, German civil servant; Heinrich Meyer, former
trade-union secretary; and Gerhard Schroeder, former Nazi gov-
ernment attorney.

This demonstration of how Dr. Puender^s mind tended to run
was not enough to get him fired as economic chief to Bizonia. Gen-
eral Clay merely announced that he thought not more than three
of the twelve trustees should come from among the former owners
of the combines, and said that he and Genera! Sir Brian Robertson,
the British Military Governor, would have the last word in approv-
ing the steel trustees.

Dr. Puender himself had had previous experience with shaping
the thoughts of his German colleagues* During the war he served
as a lieutenant-colonel in the Truppen Abwehr of the Army High
Command, the counterpropaganda service. He was in Division
IIl'H, the division concerned with preserving morale and correct
Nazi ideology in the military forces. When this record of Dr.
Puender's service was reported in the American press in Drew
Pearson's "Washington Merry-Go-Round" column, former Chan-
cellor Briining immediately rose to the defense with the claim that
Puender actually was a vigorous anti-Nazi who was one of several
who "infiltrated" the Abwehr organization as part of the German
"underground/* Dr. Bruning pointed out that Puender was ar-
rested in connection with the 1944 bomb plot against Hitler; though
he did not go on to explain that over four thousand people were

THE HAND IN THE GERMAN GLOVE 275

executed for their direct or indirect connections with that plot.
Perhaps Dr. Puender was so clever at infiltration that his complicity
was never discovered. But an even more important question which
Dr. Bruning did not answer was why an anti-Nazi and a former
member of the German "resistance" picked such a slate of steel
trustees.

As if to underline the probable future of the "international" con-
trol of the Ruhr, dispatches from Germany dated February 25,
1949, in addition to naming Dr. Puender's twelve proposed trus-
tees, also named four representatives of the United States Steel Cor-
poration and one of Inland Steel who were to be the American
members of the international Ruhr trusteeship commission. Among
them was Ian F. L. Elliott, the representative of United States
Steel ia Europe who in the years immediately before World War II
had participated in the management of the International Steel Car-
tel.

The constantly accumulating evidence of defeat of the American
reform policies for Germany reached a climax in the spring of 1949.
Almost immediately after the November election of 1948, President
Truman had directed Secretary of the Army Kenneth C, Royall to
dispatch to Germany an investigating commission that had been ap-
pointed several months before, but had been waiting for orders
to proceed. The commission was headed by Garland S. Ferguson,
a member of the Federal Trade Commission. The other two mem-
bers were Samuel S. Isseks, New York lawyer nominated by Attor-
ney General Tom Clark, and Andrew T. Kearney, business man-
agement expert nominated by Paul G, Hoffman, head of the
Economic Co-operation Administration. As legal counsel to the com-
mission, Secretary Royall appointed Charles Fahy, former Solici-
tor General, who had also served for over a year as director of the
Legal Division in Germany. To assist the commissioners, the De-
partment of the Army appointed John C. Stedman, a section chief
in the Antitrust Division; William H. England, former chief econ-
omist of the Federal Trade Commission; and Norman Mitchell,
assistant to Mr. Kearney.

The Ferguson commission held hearings in Germany in Decem-
ber 1948 and in Washington in January and February, 1949. Their

276 ALL HONORABLE MEN

specific purpose was to investigate the effect of General Clay s or-
der of March 9, 1948, rejecting the test cases under Law No. 56,
reinterpreting the meaning of the anticartei poUcy, and requiring
a substantial reduction in the size of the Decartelization Branch.

In a report of one hundred and thirty-six pages, dated April 15,
1949, the Ferguson commission found that the basic policy of
eliminating the cartels and big combines was sound, and that "this
policy should have been, and should now be, energetically en-
forced." The report commended the decartelization lav/, Law No.
56, as a reasonable and necessary regulation, and also found that
the program as we had originally designed it was reasonable. The
commissioners found no evidence to substantiate the charge that we
had proposed to '^break up" German industry into unworkable
fragments. The four-volume resume of the cartel and combine
problem was an "adequate starting point" for the activities of the
branch once the law was passed.

Turning to the reasons for failure of the program after the en-
actment of Law No. 56, the commissioners criticized the unneces-
sarily complicated procedures worked out by Messrs. Wilkinson,
Hawkins, and Bronson in the latter half of 1947. They also re-
ported that these men "with direct responsibility for carrying out
the work of the Decartelization Branch have not had the record
of accomplishment in connection with decartelization, and par-
ticularly with deconcentration, that one would like to see in per-
sons in such positions.'* The report cited evidence, too, that "some,
including those who are responsible for the review of actions, have
not always been in complete sympathy with the program."

The commissioners examined very carefully the claim that the
elimination of "excessive concentration of economic power" would
interfere with German recovery, and found no evidence to sub-
stantiate that claim.

The Department of the Army took no steps to carry out the
recommendations of the Ferguson report. The actors gradually
drifted out of the spotlight. General Draper, who had become
Undersecretary of the Army in 1947, resigned and went back to his
job as vice president of Dillon, Read & Company just before the
report was filed. General Clay*s retirement, originally set for July i,

THE HAND IN THE GERMAN GLOVE 277

1949, was suddenly announced, to be effective May 15, in a release
issued from the White House a few days after the Ferguson report
was published. Lawrence Wilkinson and Phillips Hawkins stayed
in Germany for a few months after John J. McCloy assumed office
as civilian High Commissioner, then quietly resigned. Richardson
Bronson stayed on a httle longer, then returned home.

Only two men were hurt directly by the Ferguson investigation:
both of them men who were summoned before the commissioners
to give evidence. One, Charles H. CoUison, who had run with the
hounds during the disagreement between Bronson and the nine-
teen members of the professional staff at Berlin, later gave damag-
ing testimony to the investigators on Bronson *s mishandling of the
program. Bronson retaliated by firing CoUison; and although a
review board found that his discharge had been unjustified, High
Commissioner McCloy announced that CoUison would have to go
anyway because the Decartelization Branch was again being "re-
duced/^

The other casualty was Alexander Sacks who, upon being asked
to account for the failure of the program, had replied in part: *'The
men charged with the highest responsibility by the Commander-in-
Chief have failed to carry out the explicit orders of the July 15, 1947
Directive to the Commanding General and Military Governor in
Germany. The policies of the Roosevelt and Truman Administra-
tions have been flagrantly disregarded by the very individuals who
were charged with the highest responsibility for carrying them out.
. . . It is no secret that the operations of the decartelization pro-
gram have been hampered by Major General Draper and his asso-
ciates in Military Government , . • They have done whatever they
could, by innuendo and misstatement, to discredit a program which
they either did not understand, or did not like.'*

For speaking these convictions, which the Ferguson report later
substantiated, Sacks was fired at the insistence of Lawrence Wilkin-
son on the charge of "making statements attacking the integrity
and good faith of the Undersecretary of the Army and of key
United States Military Government officials charged with the im-
plementation of the decartelization program in the United States
zone of Germany." When Wendell Berge, former head of the Anti-

278 ALL HONORABLE MEN

trust Division, took up the case, Sacks was reinstated pending the
completion o£ the report of the Ferguson commission. Then, even
though the findings of the commission verified Sacks's charges,
General Clay in one of his last official acts, on May 14, 1949, the
day before he left Germany, ordered the resumption of proceed-
ings against Sacks. Eventually Alexander Sacks was ''cleared'' by
a three-man hearing board at Berlin. He was reinstated in his posi-
tion with another branch of the military government organization.

In December 1949, the ofBcc of the United States High Commis-
sioner, John J. McCioy, hired a group of lawyers to form a new
Decartelization Branch- The new recruits included several with
previous experience in antitrust law enforcement. They were not
noticeably better or worse qualified than the staff which bore the
brunt of the fight from 1945 to 1948.

By December 1949, however, there was already talk of including
Germans in western European military forces. A western German
government was in the saddle, committed to a program of old-line
''free enterprise.'* Hermann J. Abs visited the United States to ar-
range a settlement of the defaulted dollar bonds of the 1920*8, to
pave the way for new private loans to west German heavy indus-
tries. Baron Georg von Schnitzler, Emil Puhl and others were
paroled from prison, just in time to join the parade.

A flourish of trust busting at that late date might have savecj
the surface. But could it have saved all?

CHAPTER 21

Microcosm and Macrocosm

OUR government could not muster the determination and constancy
of purpose to match the dogged persistence of the fraternity brothers.
The military government in Germany could not contend with a
small clique of Germans because the interests of these aging repre-
sentatives of Germany's New Order were integrated with the in-
terests of powerful corporations in the United States. Yet these
powerful corporations which were able to frustrate the intentions of
our government derive tlieir powers by consent of the government.

As governments are now set up, they unleash powers which they
cannot controL The State of Delaware, by virtue of its power as
a sovereign state, may charter I. du Pont de Nemours and
Company, and so give it a legal existence. Or New Jersey may
create a Standard Oil Company. Such organizations can, and often,
do, follow private goals that clash with the public interest, while
the governments which harbor them look on ineffectually. We
niight as well ask a match to control the forest fire it has started
as to ask Delaware to control Du Pont, or New Jersey to curb
Standard Oil, or, for that matter, Luxembourg to abolish the In-
ternational Steel Cartel.

In the spring of 1947 Johnston Avery and I did make a trip to
Luxembourg to ask the government of the Grand Duchy to order
the dissolution of the International Steel Cartel. We had previously
refused to allow representatives of the Arbed steel combine to en-
ter Germany and inspect their properties in our zone. Our reason
was that Aloysc Meyer, the former collaborationist, was still man-
aging Arbed, and was keeping the cartel offices and organization
intact for future use. The Luxembourg government had protested

280

ALL HONORABLE MEN

to the State Department about our exclusion order. We went and

discussed the deadlock with Prime Minister Pierre Dupong, For-
eign Minister Joseph Bech, and the Economic Minister, Guill
Konsbruck, who was also a director of Arbed and chamberlain to
the Grand Duchess Charlotte. The answer of the Luxembourgers
was, in effect, that they would not dissolve the cartel because they
could not.

A Uttle government like that of Luxembourg might not be ex-
pected to stand up to an international power complex. But what
about a larger government? The government of the United States
took no action throughout the war to halt American participation
in the Bank for International Settlements at Basle, Switzerland, a
private international bank founded by Dr* Hjalmar Schacht when
he was president of the Reichsbank. This bank was set up after
World War I in connection with the Dawes and Young plans, sup-
posedly to help foreign-exchange transactions among the countries
that were to receive reparations from Germany. After reparations
payments were abandoned, the bank went on acting as a regulator
of foreign exchange and funneled foreign investments into German
enterprises- During World War II, its president was an American,
Thomas H. McKittrick, though the Germans held the controlling
interest as before* Around a common table, American, French, Ger-
man, Italian, Swedish, Swiss and Dutch bankers transacted their
business as in peacetime. In addition to Dr. Schacht, Erail Puhl, and
others from the Reichsbank, Baron Kurt von Schroder, the Cologne
banker, and Paul Reusch of the Good Hope combine were members
of the German contingent.

The International Monetary Conference at Bretton Woods in
July 1944 anticipated postwar problems of foreign exchange in
Europe. The conference determined that financial matters of such
key importance to the economy of all European nations must not be
left under the control of a privately run international bank. The
conference adopted a resolution specifically barring from the Inter-
national Monetary Fund and the International Bank for Reconstruc-
tion and Development any nation which had not broken completely
with the Bank for International Settlements. The United States was
a party to the Bretton Woods agreement.

MICROCOSM AND MACROCOSM 28l

The American president of the bank, Mr. McKittrick, apparently
shared none of the views of the International Monetary Conference
about the Bank for International Settlements, nor the official de-
termination of the United States to change the pattern of German
economic domination in Europe. In May 1944, just before D Day,
Mr. McKittrick was quoted as saying: "We keep the machine tick-
ing because when the armistice comes, the formerly hostile powers
will need an efficient instrument such as the B.LS."

Mr. McKittrick remained as president for two more years after
the Bretton Woods resolution, and his "efficient instrument'* never
stopped ticking. In the autumn of 1948 the "efficient instrument"
quietly moved in to become an agency for clearing foreign-exchange
transactions among the countries participating in the European Re-
covery Program. Mr, McKittrick himself, by then a vice president
of the Chase National Bank, became for a time financial adviser to
W. Averell Harriman, roving ambassador in Europe of the Eco-
nomic Co-operation Administration.

Many questions about the operation of the Bank for International
Settlements during the war have never been answered. Mr.
McKittrick has not disclosed the arrangements which enabled the
Nazis to ship to the Bank for International Settlements large quan-
tities of gold looted from various countries in occupied Europe,
worth hundreds of millions of dollars. No accounting has yet been
made of it. Dr. Emil Puhl, the vice president of the Reichsbank,
when picked up for questioning after we entered Germany, revealed
that the last time he went to Switzerland in April 1945, a few days
before the final collapse of Germany, he had succeeded in getting
his friends to defer the publication of the bank*s financial statement
because he wanted to conceal the extent of the Nazi gold transac-
tions.

What we do know definitely is that over four hundred million
dollars in German assets, spirited out of Germany before the end
of the war, never have been traced. These funds are now being used
somewhere in the world by ex-Nazi Germans and their friends.
They can finance propaganda and German nationalist "recovery"
programs at will. We know that in Spain, Portugal, and Argentina
there are large colonies of ex-Nazis showing no signs of money

282

ALL HONORABLE MEN

worries. The same is true in Sweden and Switzerland. No one
knows whether any of the "spontaneous" sympathy in the United
States for a resurgent Germany is the product of a well-paid public
relations program. Emil Puhl^ the man who convened the gold
teeth and jewelry from SS concentration camps into a great
part of this four-hundred-million-doUar fund, was paroled from
prison in December 1949 by order of the High Commissioner's
office.

If most people agree that some powers now being wielded by
private bodies ought to be regulated in the public interest, we are
still far from agreement on how to devise government agencies that
can do the regulating. In September 1946 the United States proposed
a charter for an International Trade Organization, which would
work through the Economic and Social Council of the United
Nations. The purpose of this International Trade Organization, or
ITO, was to end the existing anarchy and provide an umpire for the
world*s trade. Specific functions would be to expand opportunities
for trade and economic development; aid the industrialization of
underdeveloped countries; and promote the expansion of produc-
tion, the exchange and consumption of goods, the reduction of
tariffs, and the elimination of monopoly practices and trade dis-
criminations-
Negotiations on behalf of the United States during the various
in-ter national conferences on the ITO were handled by William
Clayton, Undersecretary of State for Economic Affairs, advised by
a staff of businessmen including Philip D. Reed, chairman of the
board of General Electric and president of the International
Chamber of Commerce. It was Mr, Reed who, at Berlin, in Decem-
ber 1946, insisted that nothing needed to be done in Germany to
curb cartels and monopolies, because the new ITO provision against
restrictive practices in international trade would be enough. Actu-
ally, I found that the ITO provision was nothing more than an
agreement to investigate alleged restrictive practices and to make
''recommendations" to the governments concerned.

The ITO was also to bring about reductions of tariffs and other
barriers to international trade. When schedules of tariff reductions
were agreed upon after a long conference in 1947, 1 became interested

MICROCOSM AND MACROCOSM 283

in this first concrete action intended to free the channels of inter-
national trade.

One item that stood out in the new tariif schedules was a reduction
of the duty on imports of aluminum into the United States. I paid
particular attention to this cut, because I knew nothing had yet been
done to dissolve the international aluminum alliance. It would
seem that the alliance, with its fixed quotas, could prevent a
competitive flood of aluminum from overseas. What, then, would the
tariff reduction accomplish?

The meaning of this tariff reduction becomes clearer in the light
of the aluminum industry's development in the United States.
Until Reynolds Metals and Henry J. Kaiser's Permanente Metals
entered the field during the war, the Aluminum Company of
America, or Alcoa, formed in 1888, and the Aluminum Company
of Canada, or Alcan, formed by Alcoa in 1901, had been the only
aluminum producers in the whole western hemisphere. Alcoa kept
its position as the only producer of primary aluminum in the
United States for over fifty years by avoiding foreign and domestic
competition. Foreign competition was knocked out by the inter-
national alliance. The matter of eliminating domestic competition
followed the usual pattern: use of patent litigation to squeeze out
some competitors, absorbing other companies, buying up sources of
raw materials and power, and other moves that are familiar in the
growth of a large trust.

With the outbreak of World War II, Alcoa faced competition for
the first time. Between 1941 and 1945, Reynolds and Kaiser broke
into the field on the heels of a drastic aluminum shortage. The effect
was spectacular. While other nonferrous metals such as electrolytic
copper increased 71 per cent in price on the American market in the
six years from 1940 to 1946, and while lead increased 142 per cent
and zinc 62 per cent, the price of aluminum dropped 30 per cent.

A battle of the giants began. From the start, in 1941, Alcoa had
the inside track with better sources and lower costs for electric
power. Since power is the biggest cost in aluminum production, it
was no small advantage that Alcoa's Canadian producer, Alcan,
had a large hydroelectric site on the Saguenay River. By a series of
government grants, both Canadian and American, Alcan at the

284 ALL HONORABLE MEN

end of the war had nearly paid for all its new power plants and
could produce electricity at one half mill per kilowatt hour. This
compared with rates of from three to three and one half mills
charged by the TV A, two mills by Bonneville, and six mills in the
metropoHtan New York area.

In order to get a power supply at all, Reynolds had to set up most
of its pot-lines in the Tennessee Valley where the rate was 3.14
mills. Even in the case of TVA power, Alcoa had the advantage.
Alcoa in 1937 had made a long-term contract with TVA for power
at 2.74 mills. In 1940, when TVA charged Reynolds the higher rate,
the reason given was that the 1937 contract with Alcoa set an im-
providently low rate; but, since two wrongs do not make a right,
the TVA could not make the same mistake again.

When it came to government financing of plant expansion, the
principle of business "soundness** entered. Reynolds got loans
totalling $46,000,000 from the Reconstruction Finance Corporation
at an interest rate of 4 per cent. The loans had to be secured by
liens on all properties of Reynolds and its subsidiary corporations.
Alcan, on the other hand, as a "sound,'* going concern in the
aluminum business, got an advance of $50,000,000 from the RFC-
controlled Metals Reserve Corporation without interest or security.
After the Truman Committee crkidzcd this loan, Metals Reserve
did impose an interest rate of 3 per cent, but increased the principal
to $68,500,000.

Again because it was an "established business,'* Alcan received
a contract from Metals Reserve, under which Metals Reserve was
obligated to buy a large quantity of aluminum at the full market
prices, with additional guaranteed payments to offset increased costs
due to war conditions. When the Truman Committee looked into
this contract in March 1944, Metals Reserve had already paid Alcan
$36,000,000 in these additional payments alone, and was committed
to underwrite such extra payments up to a total of about $58,000,000,
besides paying the full price for tlic aluminum delivered. Reynolds, a
newcomer, got no firm orders from the government. It had to take
its own chances on continuing needs for aluminum; and it had to
absorb additional costs, on its own, without guarantees or escalators.
The story of the Kaiser aluminum firm was similar.

MICROCOS-M AND MACROCOSM 285

In spite of the advantages enjoyed by Alcoa, its two competitors,
Reynolds and Kaiser, made out well enough while the war was on.
That brings us to the tariff reduction in 1947. Reynolds and Kaiser
were by that time living dangerously on the fringe of the league.
The relative standings in the industry are enough to indicate the
strength of the contestants. In the United States, Alcoa had a ca-
pacity of 878,000,000 pounds; Reynolds, 474,000,000; Kaiser, 270,-
000,000. In Canada, Alcan sat across the line with a capacity of over
one biiiioa pounds, power costs of one half cent per pound, and a
new tariff of only two cents per pound, as against average power
costs in the United States for all other producers of three and one-
half cents. As a result of the "removal of restrictions on trade" by
the International Trade Organization, Alcan had a clear margin to
cut prices below the costs of Alcoa's competitors, if necessary. To
preserve Alcoa's position as leader, Alcan could wade in and ''police"
the industry by threatening a price war. The tariff reduction itself
had no immediate effect on the price of aluminum in the United
States, Alcan immediately increased its prices by exactly the same
amount to offset the tariff reduction.

What happened in aluminum fits into a pattern that is already
familiar. In our examination of the International Steel Cartel, we
had noticed how the three biggest American steel corporations.
United States Steel, Bethlehem, and Republic, improved their posi-
tion in the international cartel as they became better able to assume
responsibihty for the "correct" behavior of their competitors. With
this point in mind, I turned from aluminum to see what had hap-
pened in the steel industry since the war ended. The record showed
some notable peculiarities in the behavior of certain government
agencies which were supposed to aid production and prevent restric-
tive practices.

Before the war, the Big Three accounted for some 47,000,000 of
the 80,000,000 tons of steel capacity in the United States, or about
58 per cent of the total. During the war, the government spent
nearly $800,000,000 on new steel plants and about $300,000,000 more
on additions to existing steel plants. Private companies invested a
billion dollars in expansion of their own facilities. After all this
expansion the Big Three of the steel industry, by 1948, still accounted

286

ALL HONORABLE MEN

for 58 per cent of the total ingot capacity in the United States, which
was then about 95,500,000 tons.

This was before the Surplus Property Administration and the War
Assets Administration disposed of the large new plants. The biggest
of these was the Geneva Steel Company at Geneva, Utah, with a
capacity of nearly 1,300,000 tons per year, built by the government
at a cost of more than $200,000,000, and operated by United States
SteeL Control of Geneva tripled United States Steel's capacity in
the Far West. Early in 1947, the War Assets Administration allowed
United States Steel to acquire the Geneva plant for $45,500,000, or
23 per cent of the original cost to the government.

By way of contrast, the wartime and postwar experiences of
Henry J. Kaiser in establishing steel-making facilities in the Far
West show a type of problem that may be faced by any outsider who
happens to collide with business in government.

Early in 1941 steel shortages put a crimp in shipbuilding opera-
tions on the West Coast. Partly to get the necessary steel, and partly
because the western cost of steel is much higher than the cost of
similar products in the East, Kaiser wanted to build a plant and
make his own heavy plates, structural shapes and merchant bars.
Since he had no standing as an established producer in the steel
industry, Kaiser could not get the government to erect the plant
for him. Instead, the financial assistance had to come through loans
from the Reconstruction Finance Corporation. In the end, a steel
plant was erected at Fontana, California, at a cost of $111,800,000.

In building the plant, certain technical difficulties arose because
of wartime conditions. In 1942, the War Department's Plant Site
Board decided that the plant could not be located on tidewater,
close to large industrial water supplies and cheap ocean shipping
facilities. Instead, for security against "possible enemy attack,*' the
Plant Site Board decided that it had to be located in an area back of
the San Bernardino Mountains which was accessible only by rail-
The region was arid. In order to operate there at all, engineers had
to design elaborate facilities for reusing water. The War Production
Board, on its part, refused authorization to erect a slabbing and
blooming mill because of the wartime shortage of machinery and
equipment. The engineers had to use the m.uch m.ore costly "bottom-

MICROCOSM AND MACROCOSM 287

pour'* method of producing small, slab-sized ingots. This meant
that, from the standpoint of postwar production and marketing,
the plant would always have a costly bottleneck in the ingot stage.

Because the Fontana plant was built for a special emergency
purpose, it was a lopsided affair. It had far greater capacity for
plates and heavy sections thaa was likely to be needed in peacetime
when shipbuilding and heavy construction subsided. The plant
lacked facilities for rolling lighter sections, strip, sheets and tin
platCj and without them was likely to be a postwar white elephant.

After the war, Kaiser proposed to stay in the steel business and
sell to West Coast customers at prices less than the prevailing West
Coast "diilerential" of the Big Three. Under the "differential," or
basing point, system of fixing delivered prices for steel, western
prices had averaged about $12 per ton higher than in the east. The
$12 corresponded to the cost of water transportation from Sparrows
point, Maryland, to the Pacific Coast. To cut costs, Kaiser tried to re-
negotiate the Reconstruction Finance Corporation loan to scale down
at least part of the difference between the actual wartime con-
struction cost of nearly |i 12,000,000 and the RFC*s own estimate of
the peacetime value in 1945, which was $58,000,000,

The RFC announced that it had no power to consider anything
but straight banking practice. Under straight banking practice,
Kaiser had hired the money. Any considerations such as keeping the
plant in operation, or maintaining western industrial development
and employment, were not within the province of the RFC.

In contrast with United States Steels purchase of the Geneva
facilities at 23 per cent of the original cost, the RFC held the
Kaiser companies bound to repay $103,000,000, the full wartime cost
minus estimated depreciation of $9,000,000. The RFC did make one
concession in offering to lend an additional $11,500,000 to help with
reconversion expenses. This added amount, however, must not be
used to add the strip and tin-plate facilities needed for peacetime
production.

This application of "banking practice" to the problem produced
an interesting result. Under the RFC plan, the fixed charges for
retirement of the Fontana debt would be at the rate of $to.t6 per
ton of ingots produced, even when operating at full capacity. If

288

ALL HONORABLE MEN

the plant operated at less than capacity, the fixed charges per ton
would gradually rise. If the plant operated at only 60 per cent of
capacity, the fixed charges per ton would be $16.93. These fixed
charges per ton demanded by the RFC just happened to average out
to equal the West Coast differential of $12 maintained under the
basing-point system of the established steel enterprises. In com-
parison, the average fixed charges of the rest of the steel industry in
the United States ranged from $.78 per ton when operating at
capacity, up to $1.30 when operating at 60 per cent of capacity. The
net effect of the RFC ruling, therefore, was to make it impossible
for Fontana to sell steel competitively on the West Coast at a price
less than the western differential already set by the Big Three.

With the growth of economic giants operating in a world-wide
economy, government has become involved in activities that used
to be regarded as "business " Whatever the forces may be that have
pushed government into its new role, it seems that government
has become transformed in the process so that it now behaves like a
big corporation. The problem that must now be solved is that of pro-
tecting the whole interest of society. We cannot allow the lack of
social responsibility characteristic of the international behavior of
private corporations during the last quarter-century to become a pat-
tern for government.

CHAPTER 22

Angels and Men

SINCE our government shows signs of behaving like a big cor-
poration some people have suggested that the responsibility of the
government to the citizens of the nation should be the same as that
of a corporation's officers to the stockholders. At first glance the idea
is persuasive, translating an abstract problem in government into
everyday commercial terms. Some annual reports of the Tennessee
Valley Authority, for example, have been phrased like a business
corporation's annual report, addressing the citizens as if they were
stockholders. To a great extent, however, this sort of make-believe
merely obscures the problem, which is to get economic power under
some kind of responsible control.

It may be true that we expect from the government a responsi-
bility for the public interest at least as keen as that which the stock-
holders of a private corporation have a right to expect from the
management. But experience has shown that corporate manage-
ments arc under very little control from their stockholders and do
pretty much as they see fit. The growing supremacy of "manage-
ment** was noted in the United States during the early thirties by
several official investigations into the behavior of corporations.
It was found that the legal owners had lost effective control of most
largTe corporations. Managements had become self -perpetuating and
stockholders' meetings were largely rubber-stamp affairs. In the
light of such findings, it would be a naive stockholder who today
expected to exercise control over the management- Governments
have begun to behave in the same way.

Making a government powerful enough to keep things under
control has always raised the specter of big government. The writers

290 ALL HONORABLE MEN

of the Federalist Papers in 1788 described the dilemma of a con-
stitution-maker in the following way: "I£ men were angels, no
government would be necessary. If angels were to govern men,
neither external nor internal controls on government would be
necessary. In framing a government which is to be administered by
men over men, the great difficulty lies in this: you must first enable
the government to control the governed; and in the next place
oblige it to control itself."

We are in the same difficulty today. We have to enable the gov-
ernment to control economic power instead of becoming its tooL
Since power is a public trust, the first job of a government is to
see that power is used in the public interest and not against it. This
is where a government must be different from a corporation, and
where the comparison of citizens to stockholders breaks down. The
German government was far more responsive to the management
of the big corporations than to the citizens as such»

By chartering a private corporation, a government delegates to
the corporate body some part of its own power to regulate com-
merce. Strictly speaking, this is an abdication by the government,
giving up part of its authority to regulate matters affecting the
public interest* Under corporation law the first job of a corporate
management is not to promote the general welfare, but to promote
the interest of the corporation. On a small scale, as in the past, this
relinquishment of power has done no visible harm and the practice
has been generally accepted. If the corporation does interstate busi-
ness, however, this encroachment by the corporation on the gov-
ernment's power to regulate can be considerable. And if the cor-
poration becomes a United States Steel, it can be overwhelming.

National governments in all parts of the world have granted
power over segments oi their national economies to various cor-
porations. Over the years, these pieces have been combined in new
forms on an international scale as the larger corporations, by agree-
ment among themselves, have built a private ''world govern-
ment." This new order, stretching far beyond the boundaries of any
one nation, has operated under no law except the private law of the
agreements themselves.

It is time to view the results of this abdication by constitutional

ANGELS AND MEN 29I

governments in favor of private governments. The occupation of
Germany has already provided a good laboratory in which we could
study the activities of self-centered corporations and the activities of
a German national government in which these corporate combines
had a dominant influence. Our observations in postwar Germany did
not support the theory that the Nazi regime was a runaway affair.
Propaganda has been turned out in an effort to convince people
that the industrialists who backed the Hitler coup did not realize
they were opening a Pandora's box. We are to believe that the
troubles they set loose plagued them no less than the rest of man-
kind. On the contrary, from all that we couid gather in talking with
German industrialists, the big-industry group in Germany regrets
the Hitler period only because the Nazis lost the war. We found no
evidence that the leading industrial groups had acquired a funda-
mental distaste for German nationalism as such. They are still
working toward the organization of Europe in such a way as to
support a dominant German industrial economy, and the organiza-
tion of Germany s own economic life around a concentration of
heavy industries.

Except for its military outcome, the Nazi experiment appears
to have been a success in the eyes of its original sponsors. The unity
of German business and finance in backing the Nazis was matched
only by the precision with which the Nazi government moved in
to support the aims and interests of the dominant financiers and
industrialists. They, in turn, have been waging a hard postwar fight
to keep the economic lines of the Nazi system intact.

The Nazi effort came as near to military success as it did because
German military planners took advantage of the lessons of geo-
politics. The relation of strategically placed land masses and na-
tional resources to the control over larger areas of the earth's surface
had been studied with great care not only by Professor Haushofer
and his "geopolitical institute" but by a great number of other Ger-
man scientists, economists, and political analysts. In the same way,
the German planners shaped the economic war, not only as a supple-
ment to military operations, but as a substitute to hedge against
military defeat. The German high command made use of what we
might call ecopolitical organizations, combining both economic and

29^ ALL HONORABLE MEN

political forces under common control. Though they had no Geo-
political institute labeled as such, the Germans arranged the strategic
control of large areas of economic activity both at home and abroad
by maintaining control of bottleneck points. It was this feature of
the "cartel system" that Genera! Clay and his economic advisers
tended to ignore, placing their chief emphasis on so-called "war
potential"

The German ecopolitical organizations — LG. Farben, United
Steel, the Deutsche Bank and Dresdner Bank and all the rest — did
not die with the dismemberment of the German military machine.
When our mihtary government took over, the Germans had the
stage set for really fatal blunders on our side* The occupiers failed
to realize that the German ecopolitical forces still existed and that
their complete overhaul was a first order of business. Instead, by
delaying reorganizations and by taking the leaders of the combines
into the management of the new economic revival. General Clay's
military government entangled itself with the very forces it came
in to crush.

Some of the reform steps originally proposed in 1945 could have
had the immediate effect of removing obstacles that stand in the
way of democratic developments in Germany. Suppose that we had
been allowed to exclude the managers of the big combines from
positions of power. Suppose we had been allowed to issue the laws
we drafted to prohibit bearer shares^ the device through which
the big banks got control without having capital to invest. Sup-
pose we had been allowed to issue our law limiting interlock-
ing directorates and interlocking officeships. Suppose we had
been allowed to repeal the laws requiring a license to engage in
business.

A strict enforcement of these regulations during the early years
of the occupation would have removed at least temporarily the
power of Hitler's backers and others like them. They could not
have dominated the scene during the formative years, as they have
done. They would not have been able, as they have done, to suppress
the efforts of other Germans to reconstitute their economic life on
another basis. Furthermore, during the years of occupation, new
vested interests, decentralized in character, could have been de-

ANGELS AND MEN 293

veloped in all parts of Germany under the protection of the new
laws.

It might be argued that once the occupation forces were with-
drawn, a German legislature could repeal such laws and restore the
status quo. That view overlooks an important argument in favor of
the experiment. Even when occupation forces were withdrawn, it
would have been possible to hope that the new interests established
during the occupation might assert themselves and block any
sweeping move by the old guard to repeal the laws and return to the
old basis. Meanwhile, those of the old guard who had been ousted
would have lost some of their power. They would have become
**has-bcens," a group of old men who could not effectually train a
new generation to follow the old Une because they would not have
had the prospects to offer new recruits.

Back in September 1944, President Roosevelt had stated very
clearly that the occupation forces were not going into Germany to
feed the German people and promote their economic recovery. They
were not going in just to see that war materials were not manu-
factured. They were going in to bring about a basic change in the
economic and pohtical system that had made the Nazi war possible.
He made these remarks in expressing his total disapproval of
a proposed "guide" which the War Department had drafted for
the use of military government officials. We have already quoted
some excerpts from President Roosevelt's letter to the Secretary
of War on that occasion. Two years after the Roosevelt pro-
nouncement, however, Secretary of State James F. Byrnes, in a
speech delivered at Stuttgart on September 6, 1946, set out a policy
for Germany in. terms that could hardly be distinguished from
those of the guide that President Roosevelt had so vigorously
opposed.

General Clay, in his own memoirs, acknowledges this funda-
mental shift in policy which, without ever being announced as a
basic change from the Roosevelt policies, colored the entire picture
of the military administration in Germany. He describes the dis-
gruntlement of the Economics Division over the presidential veto
of their proposals for rebuilding Germany along the old lines.
Here is how it looked to General Clay :

294 ALL HONORABLE MEN

When I arrived in Paris I had heard only vaguely of the U. S.
Group Control Council which was now under my command, and
knew litde of its functions. I did know that, while the actual super-
vision of military government was a staf? function of Supreme
Headquarters, there was an American group planning our partici-
pation in military government after the defeat of Germany and
the dissolution of combined command. I had heard that this group
had prepared a manual for military gov^ernment that aroused
indignation in Washington because allegedly it proposed a liberal
treatment of Germany, which was displeasing to those who were
preparing a much more drastic policy directive. Our government
ordered the suppression of this manual with consequent devastat-
ing effect on the morale of the U. S. Group Control Council, al-
though reading it now will show that it deviated little from the
American policy which was to develop for Germany and to be
proclaimed first by Sea'etary of State Byrnes in his Stuttgart speech.
[Italics added.]

Military government could have carried out the directives ap-
proved by two presidents and set out in black and white in official
documents. Instead, it chose the limited objectives of quick economic
recovery and winning the support of German industrialists, at the
expense of not carrying out the reforms which were the only im-
mediate justification for the occupation in the first place. How can
we require government officials to stick to public policy instead of
giving way before a solidly organized effort from commercial in-
terests to prevent such policies from being carried out? Will Ameri-
can public policy recognize its public aims? Or will it go back to
serving the interests of a limited group under the aegis of tem-
porary expedients like saving the taxpayers* money or protecting
American private interests abroad?

Though there is still time to try again in the German laboratory,
it docs not mean that a change of men would necessarily be enough
to produce a change in result. We have seen how the international
fraternity works. Long before German industry becomes a military
menace as such, it will become an instrument in the hands of British
or American financial groups engaged in the dubious enterprise of
rebuilding their former balance of power in Europe. We have seen
the almost limitless ways in which it is possible for them to maintain

ANGELS AND MEN 295

control over the course of events in spite of paper declarations. It
is not enough to have policy statements on paper. There has to be
an effectively organized and popularly supported political pressure
to insist that public policy shall be carried out. This popular political
organization has to be forceful enough to withstand propaganda
campaigns and political maneuvers backed by unlimited cash.

The ecopoliticai masters of Germany boosted Hitler and his pro-
gram into the driver's seat at a time when the tide in the political
fight between the Nazis and the supporters of the Weimar Re-
public was swinging against the Nazis. All of the men who mattered
in banking and industrial circles could quickly agree on one program
and throw their financial weight behind it. Their support won the
election for the Nazis.

We must assume that the same thing is not yet true in the United
States. We do have economic power so concentrated that it would
lie in the power of a group of not more than a hundred men — if
they could agree among themselves — to throw the same kind of
combined economic weight behind a single program. They have not
agreed yet. There are still enough divisions within the Republican
Party and enough minor differences between Republicans and
Democrats to indicate that on some fundamental economic questions
there are different points of view, each one championed by a dif-
ferent faction inside the financial and industrial community itself.

If the United States should run into serious economic difficulties,
however, most of the conditions for a re-enactment of the German
drama would already exist on the American stage. The slight dif-
ferences within the camp of the fraternity then may be the only real
barrier to the kind of integration of the financial and industrial
community behind a single repressive program, like that which
the financiers and industrialists of Germany executed through Hitler.

Arc we safe in assuming that it would take a grave economic
crisis to precipitate the dangers inherent in economic concentration ?
The basic integration of the financial and industrial groups in the
United States is evident when we look at the increase of concentra-
tion in the past few years. Before the outbreak of World War II, the
250 largest American industrial corporations controlled two thirds
of the industrial assets in the United States, and the bulk of this

296 ALL HONOJtABLE MEN

collection was m the hands of the 100 largest. The leading firms

were arranged into eight major groups by common financial ties
and interlocking directorates. During the war, the government spent
$175,000,000,000 on prime war contracts. Of this amount, ten
corporations got the top 30 per cent, and one hundred corporations,
including those ten, got the top 75 per cent. The government spent
$26,000,000,000 on new manufacturing plants. Half of the total in
new plants went to twenty-five corporations and three fourths went
to one hundred corporations.

The next step was inevitable. In the postwar demobilization and
the sale of "war assets," three fourths of all the war plants were dis-
tributed among the 250 largest firms, and the remaining one fourth
went to some of the 262,000 small firms which, before the war, had
accounted for about one third of the total industrial facilities. In the
five years o£ the war, the 60 largest corporations more than doubled
their total assets. When the shooting was over the 100 largest cor-
porations, held by the same eight financial groups, instead of con-
trolling two thirds controlled three fourths of the American in-
dustrial economy.

Just as the six largest financial corporations in Germany inter-
locked with the dominant industrial firms, so there are eight large
financial units in the American economy which in recent years have
assumed a comparable degree of power over here. These are: (i) the
Morgan group controlling, among many others, such headliners as
United States Steel, General Electric, Kcnnecott Copper, American
Telephone and Telegraph, International Telephone and Telegraph;
(2) the Rockefeller interests, including the Standard Oil companies
and the Chase National Bank; (3) the Kuhn, Loeb public utilities
network; (4) the Mellon holdings, including the Aluminum Com-
pany, Gulf Oil, Koppers, Westinghouse Electric; (5) the Chicago
group, including International Harvester and the Armour and
Wilson packing houses; (6) the Du Pont interests, including Gen-
eral Motors, EJ. du Pont de Nemours, and United States Rubber;
(7) the Cleveland group, with Republic Steel, Goodyear and others;
and (8) the Boston group, including United Fruit, Stone and Web-
ster utilities and First National Bank of Boston.

Firms in the portfolios of these eight groups make up the Big

ANGELS AND MEN 297

Threes and the Big Fours of practically every basic industry in the
United States. Through their co-operative control of the largest
insurance companies and the agreements under which they manage
all large security issues, these combinations of companies are in a
position to determine the flow of a large part of the ''investment*' in
the United States.

We have been slow to recognize the inherent dangers in cor-
porate empires because we have had a theory that business does
not need to be governed. The cartel era of the twenties popularized
the slogan of "keeping the government out of business.** The war
and postwar era of the forties went the other way, introducing the
notion that the government's job is to "create a favorable climate
for private investment.*' In World War II, for example, the United
States government spent over a billion dollars in conciliating the
rulers of Saudi Arabia and Iran, thereby creating a "climate" in
which the Arabian-American Oil Company and a few others after
the war have made millions in oil concessions on a very modest cash
investment. The new era has been one of "co-operation," amounting
almost to identification, between business and government.

The economic system of the United States is supposed to have
been developed according to the principles of private Investment.
In place of a government planning board determining the number
of shoes, automobiles and radios to be made each year, it is sup-
posed that private investors, making their separate guesses at the
types of production likely to be most profitable, have determined
the size and character of the different parts of the system. It is a
favorite theme with editorial writers that the United States has
secured the most productive industrial scheme in the world under
these principles of independent private investment.

Even if the principles of investment can be relied upon, as the
theory goes, to direct the flow of new capital into areas and activi-
ties where development will be most profitable, it does not neces-
sarily follow that these same principles will direct new investments
into fields where development is most necessary from the stand-
point of public interest. In the case of war, for example, where the
objective is not to make the most money, the habitual practices of
investment experts get in the way. War production, with its de-

298 ALL HONORABLE M£N

mand for high output, imposes a strain on business organizations

designed to operate at lower output and high prices.

The great productive effort of World War II followed a long
period of negotiations between government and the management
of industries to break production bottlenecks and allow materials
to start rolling. These blocks included resistance to conversion of
plants for war production from their usual peacetime production
of such items as automobiles, refrigerators and radios. There was
resistance to expansion of basic industries, symbolized by the stacks
of aluminum pots in every courthouse square, by the steel shortage,
and by the delays in the synthetic rubber program. There was re-
sistance to the licensing of patented processes to "outsiders** and
there were other patent restrictions, as in Plexiglas for bomber
noses, quinine substitutes for malaria prevention, and many others.
There was resistance to subcontracting of prime war-production
contracts so that the large, medium-sized, and small independent
firms could unleash their unused productive energies.

Though the economic system of the United States is supposed to
have developed according to the principles of private investment,
it is not true that the over-all "plan'* or pattern of the nation's eco-
nomic growth has been purely the product of uncoordinated, indi-
vidual decisions. The necessities of war and other major actions of
government have given direction and impetus from time to time,
but the greatest economic forces have been under steady control
for a long time through the system of concentrated "free enter-
prise," with its interlocking directorates, holding companies, com-
bines, intercompany agreements and manufacturers* associations,
and through the private planning of international bodies like the
International Steel Cartel.

There is, probably, no magic formula to determine exactly how
far our government would have to go in devising new laws to
enable it to assume control over the nation*s economic course. How-
ever, the example of Germany does indicate some of the guidelines
which ought to be watched carefully. At the base of the German
problem was the unbalanced economic system tightly controlled by
a clique of financial and industrial operators. What we have seen of
the pattern followed in Germany indicates three principal ways in

ANGELS AND M£N 299

which the behavior of the banks and the industrial combines threw
the national economy out of balance. First, the economic system was
overburdened with heavy or producer-goods industries and deprived
of light or consumer-goods industries; second, industrial production
was overemphasized and agriculture was neglected; third, the prod-
uct of the German factories was overpriced in relation to the na-
tional income, so that the population as a whole could not buy all
the goods that the nation*s factories produced.

These balances between heavy and light industries, between in-
dustry and agriculture, and between production and consumption,
were destroyed partly by the failure of the Weimar government to
act, and pardy by the positive acts of the financial and industrial
clique. In building an economy dominated by heavy industry with
high rates of income for the combines, with shortages of food and
consumer goods for everyone else, they upset the balance not only
of the German economy, but of the whole European economy as
welL Germany ran a downward and inexorable course toward
economic dislocation, violent political measures to fend off the con-
sequences, and finally war.

Our job now is to prepare for a future crisis before it happens.
This means we must have a double objective in Germany. The oc-
cupation of Germany must be put back on the track. But more than
that, we have to reassert public goals in the United States which
will prevent the already apparent concentration of economic power
in our own country from reaching the end it did in Germany. We
cannot hope to end the concentration of economic power in Germany
until we are able to deal with the concentration of economic power
in the United States*

This brings the German problem home with an urgency that has
been missing in the postwar discussions about Germany. The need
to treat Germany as an American problem was not felt in this
country after World War 1. Despite warnings from men whose ex-
perience with the German occupation had convinced them that
we were entering a period of armed truce, and not peace, business
arrangements went ahead unchecked to rebuild a Germany that
could not be expected to be anything but a steam-roller. Now, with
all that experience and warning behind us, and in spite of strong

300 ALL HONORABLE MEN

popular support for the reform of Germany, we have had to watch
the same errors being repeated as if nothing else were possible.

The moral of this is not that Germany is an inevitable menace,
but that there are forces in our own country which can make Ger-
many a menace. And, more importantly, they could create a menace
of their own here at home> not through a deliberate plot to bring
about a political catastrophe but as a calm judgment of "business
necessity." The men who would do this are not Nazis, but busi-
nessmen; not criminals, but honorable men.

INDEX

Index

Aachen Basin, 39

A.B. Investor, subsidiary of En-
skilda Bank) 250, 251

A.B. Svenska Kullagerfabrikcn,
Swedish bearing monopoly, 137,
219, 251-254, 268, 269

Abbink, John, Chairman, National
Foreign Trade Council, 194

Abs, Hermann J., Managing Di-
rector, Deutsche Bank, 71, iii,
127, 132, 135, 185, 242, 274, 278

Achilles, Theodore, 165

Acierics Reunies de Burbach-Eich-
Duddange, 39, 40-41, 49, 137,
279

Adenauer, Chancellor, 241

A.E.G. See Allgemeine Elektrizi-
tats Gesellschaft

Agartz, Victor, 274

Agfa. See General Aniline & Film
Corporation

Agreements, international business,
scope of, 4-5, 9, 61; wartime in-
vestigation of, 9-12, 13-14; re-
striction of production in United
States, ro, 15

Air Intelligence, 9

Aircraft-equipment firms, three*
way arrangement among, 11

AKU", Dutch rayon trust, roo, lor,
131, 132-136, 137, 219, 253

Albert, Heinrich, 52

Albert, Werner, 273-274

Albert & Westrick, 52, 53

Alcan. See Aluminum Company
of Canada

Alcoa. See Aluminum Company
of America

Alien Property Custodian, Stand-
ard Oil suit against, 77-81; seiz-
ure of Krupp patents, 91; seiz-
ure of American Hyaisol Cor-
poration, 116; proposed seizure
of rayon firms, 132

Allen, George, 213

Allgemeine Elektrizitats Gesell-
schaft, 71, 90, 100, 10 1, 125, 139,

Allied Control Authority, organ-
ization, 166-167; problem of de-
centralization of German econ-
omy, 168-174, 175-179. See also
Military Government for Get*
msny (VS.)

Allocation, of raw materials in
postwar Germany, 177, 213-215

Alsace-Lorraine, 39, See dso Lor-
raine

Aluminium Werk Bitterfdd, 112

Aluminum, German domestic pro-
duction, 112; U.S. tariff reduc-
tion, 282-283, 285

Aluminum Company of America.
283-285, 296

Aluminum Company of Canada,
2S3-285

America and a New World Order

(Howard), 24 ^ 164
American Bemberg Corporation,

132, 135-^3^
American Bosch Magneto Corpo-
ration> operations of, 219, 248-

304

INDEX

251. See dso Bosch^ G.m.b.H.,
Robert

American Enka Corporation, 132
American Hyaisol Corporation,
I I 6-1 17

American I.G. Chemical Corpora-
tion, 67-68

American Potash and Chemical
Corporation, 212

American Telephone and Tele-
graph Company, 127, 296

Amram, Philip W., 76-77

Anaconda Copper, 10

''Antidumping" act of 1921, 66

Antitrust Division, Department of
Justice, 9; investigation of Amer-
ican patent system, 61

Antitrust laws, enforcement of,
suspended for duration of vi^ar,
13; evasion of, in International
Steel Cartel, 46-47; violations of,
by Philips, 140

Antitrust legislation, 172

Antitrust policy, administration of,
in Germany, 185. See also De-
cartelization Branch

Antitrust suits, international, size
and scope o£, 4-5; Sterling Prod-
ucts, Inc., 7-8; Standard Oil-
I.G. Farben, 69

Arabian-American Oil Company,
297

Arhed. See Acieries Reunies de
Burbach-Eich-Dudelange

Argentina, ex-Nazis in, 281-282

Armour, Bernard R,, 212

Armour & Company, 296

Arnhem, Holland, 123

Arnold, Thurman, Assistant At-
torney General, 4, 5; drive
against international industrial
agreements, 7, 12-13

Art treasures, discovery of, at
Merkers, 58-59

Associated Rayon. See AKU
Athenia, British ship, 251
Attlee, Clement R., 158
Auergesellschaft, subsidiary of De-

gussa, 145
Auschwitz, concentration camp at,

,87

Autarchy pian. See Four-Year
Plan

Avery, Johnston, 9, 229, 260, 261,

262, 279
Avieny, Wilhelm, 128

BabingtoN'Smith, Brigadier M. J.,
Chief of Financial Branch,
SHAEF, 76, 133

Bad Sachsa, 78, 97

Baldwin, Charles C, 230, 231, 261

Baii, Irene Opton, 261

Bali, Joseph H., 88

Ball, Theodore H., Deputy Direc-
tor (later Director) of Finance
Division, 190, 207-208

Ballestrem, Count von, 125

Bank der Deutschen Arbeit, 122

Bank Deutsche Lander, 190, 242

Bank for International Settlements,
121, 280-282

Bank of America, 126

Bankers, German, back Hitler, 6,
18

Bankhaus J. H. Stein, 50, 51-52,
54, 1 01, 122. See also Schroder,
Baron Kurt von

Banks, German, three dasses of,
118; centralized commercial and
investment, 121- 122; private
partnerships, 122; deposits of
stock, 126; control of industrial
economics, 129-130; decentral-
ization of, 190, 198. See also
individual banks by name

Banque de ilndochine, 207

INDEX

305

Barich, Karl, 274

Barron, John J., 261

Bary & Company, H. Albert dc, 92

Batt, William L., 254

Bayar, Colonel A. C., Soviet con-
trol officer, 224

Bayer Company, 15

Bayrische NIotoren Werkc, 127

Beaty, Kathryn R», 261

Bech, Joseph, Foreign Minister of
Luxembourg, 280

Bcckhart, Benjamin H., Econo-
mist, Chase National Bank, 194

Bedaux, Charles, 251-252

Bedaux System, 251

Rehn, Colonel Sosthenes, 209

Belgium, German vested interests
in, 18-19

Bell, Laird, 170, 171

Bemberg A.G., J, P., 134

Bendix Corporation, agreement
with Siemens and Zenith, 11

Bennett, Jack, Director of Finance
Division, 190, 206, 207-208;
Finance Adviser to the Military
Governor, 222

Berge, Wendell, 261, 277-278

Berlin Chamber of Commerce, 125

Berliner Handelsgesellschaft, 100,
lOi, III, 122, 124-125

Bernstein, Colonel Bernard, 59,
89, 176, 238

Bessonov, Sergei, 195

Bethlehem Steel Corporation, 47,
48, 285

Bevin, Ernest, 158

BHG. See Berliner Handelsgesell-
schaft

Biddle, Francis, disagreement with
Arnold, 7, 12-13; quashes prose-
cution of Sterling Products, Inc.,
7-8; demands curbs on German
combines, 13-16, 17; quoted on
reorganization plans, 255

Big Bertha, gun of World War I,

Bizonal Economic Administration,
267-268, 273

Bizonia, decartelization law for,
228, 229; population, 240; Ger-
man administration in, 241-242.
Se^ also Military Government for
Germany (U.S.)

Blockades, 8

Board of Economic Warfare, cre-
ation of, 8~9

Bofors steel and munitions works,
252

Boforsinteressenten, 252
Bogdan, Captain Norbert A., 25,
52

Bohme Fettchemie, G.ra.b-H.,
Henkel subsidiary, 116

Bombing, strategic, 8

Bombing Survey, U.S., of Ger-
many, I 61-162, 179

Bonn, Germany, 50, 55

Bordereaux, reinsurance informa-
tion sheets, 20-21

Borkin, Joseph, 21, 23

Borsig combine, 43

Bosch, Carl, Chairman of I.G. Far-
ben, 30, 64, III

Bosch, Robert, 44

Bosch, G.m.b.H., Robert, 90, 125,
214, 246, 247-251, 256, 260-261,
270-272

Bosch-Swiss agreement, 271-272
Boston group, financial unit, 296
Bottlenecks, search for, in German

production, 9-10
Bourke-White, Margaret, 106
Boyd, Colonel James, head of In-
dustry Branch, Economics Divi-
sion, 192
Bradley, General Omar N., 26
Brandstatter, Krupp director, 93

3o6 IN

Braunkohle-Bcnzin synthetic fuel

company, 71
Bretton Woods Conference, 280-

Brewster, Owen, 88

Briesen, Hans von, 93

Briey Basin, Lorraine ore field, 34,

35

British Iron and Steel Federation,

48. 49 ^ . .

British Isles, See Great Britain
Bronson, Colonel Kic)x2Lrdson, 230,

255, 256-260, 269, 272, 276, 277
Brown, Lewis H., 265; Report on

Germany, 243-244
Brown Brothers, Harriman fic

Company, 265
Briining, Chancellor Heinrich, 5-

7, 102, 107, 274^275
Bulge, Battle of the, 38
Burckhardt, Otto, 128
Burckmeycr, Hans, 125
Bureau of Mines, United States,

112

Burgess, Randolph, Vice Chair-
man, National City Bank of
New York, 194

Buro Keppler, 72

Bursler, Norman, 24, 54, 60

Buscmann, Alfred, 93

Bushy Park, 24, 53, 155, 164

Business, government and, 264-
266, 268-269, J 282, 288, 289-
290, 2g^-^oo

Biitefisch, Dr., chief of LG. Far-
ben synthetic oil production, 77

Byrnes, James F,, Secretary of
State, 293, 294

Canning, John H., 238

Capital goods, exemption from re-
organization program, 256-257

Carp, Werner, head of Haniel
dan, 100, 105

EX

Cartels, i^op\ji2it indiiference to, 4;
operation of, in Germany, 15-
16, 85; Division of Investiga-
tion of Cartels and External As-
sets, 153, 170. See also Agree-
ments, international business;
Decartelization Branch; Decen-
tralization; Industry

Cartels Division, 163, 176, 191.
See also Decartelization Branch

Centers of investigation, 76

Chambers, S. P,, 76

Chambrun, General Count Adal-
bert de, 207

Chambrun, Count Rene de, 207

Charlotte, Grand Duchess of Lux-
embourg, 38, 40

Chase National Bank, 127, 194,
296

Chemical Foundation, 91

Chemical industry, synthetic, Ger-
man development of, 62-63;
German global plans, 68-70; go-
betweens, 1 1 6-1 17. See dso I.G.
Farbenindustrie A.G.

Chemische Fabrik von Heyden
A.G., 212

Chicago group, financial unit,
296

Chicago Pneumatic Tool Com-
pany, 219

Chicago Sun, 230

Chinaware, instance of, 217

Churchill, Winston, 158

Cigarettes, PX, 230

Civil Affairs Division, U-S. Army,
208

Civil Service, in German military
government organization, 163

Clark, Deifaert, 230, 257

Clark, Tom, 275; discussion of de-
cartelization program, 232-233

Clausewitz, Karl von, quoted on
war, 235

INDEX

307

Clay, Generai Lucius U.S, Mil-
itary Governor in Germany, 166,
167, 168, 170, 191, 193, 221, 244,
292; position on decartelization
and denazification of Germany,
186, 197-200, 201-204, 227, 228,
246; German penicillin prob-
lem, 210-212; position on dispo-
sition of German dollar credits,
214, 215; quoted on pressure
from U.S. firms with German
interests, 218-219; position on
Meader report, 225-226; and de-
feat of occupation, 235-240 pas-
sim; on dhmantling program^
239; on failure of food program,
241; approves new policy of
German industrial reorganiza-
tion, 258-262, 268, 269, 276; or-
der re members of occupation
forces on private business, 271;
retirement, 276-277; on U.S.
policy in Germany, 293-
294

Clayton, William L., Assistant Sec-
retary of State for Economic Af-
fairs, 199, 282; position on de-
cartelization law, 227

Cleveland group, financial unit,
296

Coal, in Ruhr area, 29; German,
after World War I, 29-32, 34;
Haniel interests, X04, 105-106;
Reich Coal Association, 132;
production of, under Potsdam
Agreement, 160-161; allocation
of, in postwar Germany > 177,
179, 182-184; reorganization of
industry, 272-273

Coai Syndicate. See Rhenish-West-
phalian Coal Syndicate

Cole, Colonel, 78

Coleman, Creighton R., 191, 192,
230

Collaborationists, role of, 136-137
CoUison, Charles H., 277
Cologne, Germany, 50, 55, 75
Combined Travel Board, 205-206
Combines, in German industry,

128; decentralization of, blocked

by England, 154-155, See dso

Industry, German
Comite des Forges, French wing

of International Steel Cartel, 34,

35

Commerce and Industry Group,
267

Commercial Solvents Corporation,
agreements with Degussa, 115

Commerz und Privat Bank, 52,
122, 124, 125; loans to, 71; con-
nections with JJnite:d. Steel, 100,
1 01; reorganization of, 190

Commodity Credit Corporation,
214

Commonwealth and Southern, 127
Competition, German notions of,
103

Congressiond Record, 262

Conrot, Eric, 39, 40

Consumer goods, problem of, in
Germany, 122-123

Contractual tics, proposed elimina-
tion of, in Germany, 196-197

Control Council Law No. 9, dis-
solution of LG. Farben combine,

Controls, relaxation of, m occu-
pied Germany, 215-220

Corcoran, Thomas G., attorney for
Sterling Products, Inc., 7

Corn Products Refining Company,
207

Corporations, German, 1933^1942,
128-130

Cotton, postwar shipments of, to

Germany, 2r6
Courtaulds, Ltd., 135

INDEX

308

Credits, dollar^ to Germany, 214-

215

Criminal Code, quoted, 270
Crisswali, Colonel, Military Gov-
ernor of Frankfurtj 74
Curasao, N.W.L, Philips offices at,
141

Currency, reform of German, 225
Cyanides, I3f4-ii5
Czechoslovakia, German occupa-
tion of, 171-172

Daimler-Benz, 10 i, 127

Dawes Plan, 33, 53, 280

DEAG. See Deutsche Erdoel A.G.

Decartelization Branch, replaces
Cartels Division, 163, 176, 177,
178; recruitment for, 191-193;
opposition to, 195-194, 197-

199, 20c^204; problem of decar-
telization lav;^, 194-196, 197-

200, 227-230; suggested pro-
gram of President's Executive
Committee on Economic For-
eign Policy, 196-197; General
Clay quoted on, 201-202;
Meader report, 221-222, 225-
226; Reed report, 222-223, 226-
227; standstill agreement with
Economics Division, 226; Mili-
tary Government Law No, 56,
228, 229, 231, 232, 245-246,
247, 256-257> 258, 273; Hoover
report, 228-229, 232; Report on
German Cartels and Combines,
230, 231; report of business ex-
ecutives, 232, 233; U.S, policy
reaffirmed, 233-234; Brown re-
port, 243^.244; new policy of,
245-246, 2SS'26z, 276, 278;
memoranda to General Clay,
257-258, 259, 262; report of
Ferguson Commission, 275-278

Decentralization of German econ-

omy, problem of, 154-162, 168-

174, 175-179, 194; negotiations
of State Department and British
Foreign OHce, 165. See also De-
cartelization Branch
Degussa. See Deutsche Gold und

Siiber Scheideanstalt
Deist, Heinrich, 274
Delaware corporations, 137
Delbriick, Schickler & Company,
122

DEMAG machinery combine, 10 1,

Denazification, 229; General Clay
quoted on, 201-202

Dencker, Paul, chief accountant o£
LG. Farben, 64, 66

Department of Justice, 9

DEST. See Deutsche Erd und
Steinwerke, G.m.b.H.

Deutsche Bank, 52, rii, 122; loans
to, 71; control of Manncsmann
Rohrenwerke A.G., 94-95, 97;
connections with United Steel,
TOO, 1 01; Operations of, 126-
128, 129, 135, 292; reorganiza-
tion of, 190

Deutsche BergwerJ(s-Zeitung, cited
on Poensgen's birthday celebra-
tion, 44

Deutsche Erd und Steinwerke,
G.m,b.H,, suppliers of slave la-
bor, 87, 120

Deutsche Erdoel A,G., 95, 10 1

Deutsche Front, 35

Deutsche Gold und Siiber Schei-
deanstalt, precious metals com-
bine, 90, 1 1 3-1 1 5, 125, 145

Deutsche Hydricrwerkc A.G,,
Henkd subsidiary, 116

Deutsche Kredit-Sicherung KG.,
206

Deutsche Landerbank, 122
Development of German Natural

INDEX

and Synthetic Raw Materials,
Special Agency for the, 72

Devereux, Frederick L., 164, 192,
243, 265

Dierig A.G., Christian, 125, 126

Dieudonne, Hector, Secretary of
International Steel Cartel, 39

Dilley, Charles A., 261

Dillon, Clarence, 41, 207

Dillon, Read & Company, 13, 24-
25, 41-42, 53, 127, 206, 207, 265

Dinkelbach, Heinrich, Chairman,
United Steel, 90, 94, 102-103,
III, 185, 241, 274

Dismantling program. See Repa-
rations

Division of Investigation of Car-
tels and External Assets, War
V>t'^2irVrs\c,Tit^ 153, 170

DoUar-a-year men, investigation of,

265-266

Draper, Brigadier General Wil-
liam H., Jr., association with
Dillon, Read & Company, 41,
206, 276; head of Economics
Division, 90, 91, 163, 176, 177,
186-187, 191, 193, 194, 198-199,
203, 222-223, 225, 227, 277

Dresdner Bank, 121, 122, 292;
connections with United Steel,
100, Toi; operations of, 113, ti6,
126, 127-128, 129; relations with
Henkel, Degussa, and Metall-
gesellschaft, 117; loan to DEST,
120; reorganization of, 190

Duco A. G., 125

Duisberg, Cari, 44

Dulles, Allen W., 67-68, 106

Dulles, John Foster, 53, 250

DxLtiCs^n^ Sir Andrew, 49

Dupong, Pierre, Prime Minister of
Lu5cembourg, 280

Du Pont de Nemours and Com-
pany, E. I., 55, 58, 116, 137, 279,

296; agreement with Rohm &
Haas, lo-ii; cyanide produc-
tion, 115; patent-exchange agree-
ments with Degussa, 115

Diisseldorf , headquarters of United
Steel Works, 85; Allied occupa-
tion of, 86

Diisseldorf Agreement (1939)9 5,

18, 159, 171-172, 174

Dutch National Committee for
Economic Collaboration, 136

Dyestufis and chemical trust, Ger-
man. See I.G. Farben Industrie
A.G.

ECHTE MINE, 94

Economic Co-operation Adminis-
tration, investigation of disman-
tling program, 239; failure of
food program, 239-241

Economic Directorate, Allied, in
Germany, 170

Economic Foreign Policy, Presi-
dent's Executive Committee on,
decartelization program, 196-
197

Economic Warfare, nature of, 8-9;
German, in action, 13-14; Ger-
man bridgeheads for, 81

Economic Warfare, British Minis-
try of, 22

Economic Warfare Section, De-
partment of Justice, creation of,
9; investigation of concentration
of German economic power, 17-

19, 90; report on German occu-
pation after World War I, 28;
aids and hindrances to, in Ger-
many, 74-79; investigators*
headquarters in Ruhr, 82-83;
additional field staff requested,
88-89

Economics Division, 165, 173, 174,
184, 208; dissention in, 175-178,

310

INDEX

191; recruitment for, 191-193;
obstruction of Decartciization
Branch, 193-194, 197-198, 200-
204, 225, 234, 236, 237, 269;
briefings of visiting U.S. dele-
gations, 200-201; position of, on
stimulation of German produc-
tion, 213-215; laxity of, in Ger-
man reconstruction, 215-220;
fear of publicity, 230

Ecopolitical organizations, in Nazi
effort, 291-292

Eden, Anthony, 158

Editors, visit of, to Germany, 200-
201

Edward VIII, King of England,
251

Edwards, Corwin D., 143
Eindhoven, Holland, 22
Eisenhower, General Dwight D,,

17, 25, 27, 39, 59, 88, 168
Eisier, Rudolf, 125
Electric lamps, control of world

trade in, 145-149; economic life

of, 147-148
Elliott, Ian F. L., 49, 275
Engel, Fricdrich Wilhclm, 274
England, See Great Britain
England, William H., 275
Enka, Dutch rayon firm, 134
Enquete Ausschuss, 43
EnskiMa Bank, Stockholm, 137,

250, 251

Entente Internationale dc I'Acier,
See International Steel Cartel

Equipment, wartime, disposition
of, 187-188

Eschweiler, Germany, 39

Espionage Act, 21

European Recovery Program, 242

Exchange. See Foreign exchange

Export-Import Bank, 115

Export-Import program, problem
of, for Germany, 218

Exports, resistance to German, in
United States, 218

Fahy, Charles, 21, 23, 170, 275

Fairless, Benj^imin F., 48

Federal Bureau of Investigation,

22, 23-24
Federal Homt Loan Bank system,

71

Federalist Papers, quoted on gov-
ernment, 290

Federation of British Industries,

96; Diisseldorf Agreement, 5, 18,

159, 171-172, 174
Feine, Otto, head bookkeeper of

German Steel Association, 99
Fcldmiihle paper works, 125
Fcltcn & Guillcaume Carlswerk,

39> 49

Ferguson, Garland S,, 275
Ferguson, Homer, 88
Ferguson Commission, 275-278
Finance Division, 163, 208; decen-
tralization of German banks,
190, 198; German currency re-
form, 225
Financial Branch, SHAEF, 17
Financiers, proposed list of, 75
First National Bank of Boston,
296

Fischer A.G., bearing works, 254,
260, 269

Fisher, Commander Joel, 121

Flags, display of foreign, in Ger-
many, 97-98

Flick, Friedrich, 87, 90, 101-102,
128, 241

Flick steel complex, yi^Si^Sy^ 100,
101, 125, 214, 273

Flotow, Hans von, 100

Focke-Wulf military aircraft com-
pany, 209

Food progranni, investigation of, by

INDEX

3IX

Hoover mission, 228; failure o£,
in Germany, 238, 239-241
Ford Motor Company, German
works, 75; French subsidiaries,
207

Foreign exchange, Nazi control of.

Foreign Funds Control Division,
Treasury Department, investiga-
tion of concentration of German
economic power, 17-19

Foreign Property Holders' Protec-
tive Association, 208

Forney, Coionel, 153

Forrestal, James V., 13, 41, 265

Four- Year Plan, German rearma-
ment, 71, 72, 107, III, 123, 216

France, economic collaboration
with Third Reich, 18; German
vested interests in, 18-19; iron
and steel production, 31, 46; con-
flict of public policy and private
activities, 34, 36; fall of, 1940,
36; position on decentralization
of German industry, 171; posi-
tion of, on Ruhr, 180, 184;
negotiations for decartciization
law, 195, 196, 198, 199, 227

Franck, Coionel J. J., French con-
trol ofSccr, 211

Franco, Francisco, 124

Frank-Fable, Dr., diary of, 60-61

Frankfurt am Main, 55, 57-58, 76

Frani{jurter Zeitung, quoted on
VKF, 253

Frazer, Colonel Frank E., 37

Friedrich, Hermann, Swedish con-
sul general in Diisscldorf, 98

Fritts, Frank, 208

Funk, Walther, Nazi Economic
Minister, 44, 118

Gage, Leslie, 93
Gasoline, synthetic, 9, 10

Gay lord, Robert, Chairman of
Executive Committee, National
Association of Manufacturers,
194

Gebriidcr Stumm, G.m,b.H.;, 100
Gendorf, poison-gas plant at, 187
General Aniline & Film Corpora-
tion, 67-68
General Electric Company, 10, 127,
296; foreign affiliations, 139, 140,
146, 147, 194, 218; government
case SLgainsty 269
General Motors Corporation, 10,

III, 218, 219, 296
Geneva Steel Company, 286
Geopolitics, in Nazi effort, 291-292
German Credit and Investment
Corporation (Deutsche Kredit-
Sicherung, K.G.), 206
German Credit and Investment
Corporation of New Jersey, 206
German State Railway, loi, 260
German Steei Association, 99
Germany, wartime study of indus-
try in, 9-12, 13-14; investiga-
tion of concentration of eco-
nomic power, 15-19; occupation
policy, 28; co-ordination of
national and private interests,
34» 36-37. 291-295, 298-299;
recapture of industrial and mar-
ket control akcr World War I,
41-43; I.G. Farben and world
power of, 70; Four-Year Plan,
71, 72, 107, III, 123, 216;
threatened bankruptcy, 117;
Nazi war economy, 118-121,
122-T23, 128-130; postwar pol-
icy for, 155-158; effect of Allied
bombing, 1 61-1 62, 179; problem
of international control, 1 81-182,
187; reports of American visi-
tors, 184-185; conversion of
light-industry economy, 191; re-

312

INDEX

taxation of restrictions on travel
into, 208-210; currency reform,
225; defeat of American reform
policies, 235-244, 275-278, 279,
282; Dr. Schacht's plan for post-
war recovery, 242-243; preferred
status of "foreign'* companies,
267; United States and problem
of, 299-300. See also Nazi Party

GestapOj 54

Ghercsos brothers, 271

Girdler, Tom, 48

Glanzstofi-Courtaulds, G.m.b.H.,
135

Glaser, Bernard, 54

Glyn, Mills & Company, 76

Gobbers, Emil, chief accountant of

Mannesmann, 96-97
Goetz, Carl, Chairman, Dresdner

Bank, 71, 100, 113, 128
Gold, recovery of German, 58-59,
73; shipment of, from United
States to Germany, 115; trans-
actions with Bank for Interna-
tional Settlements, 281
Golddiskontbank, subsidiary of

Rcichsbank, 120
Goldschmidt, Theo, 125
Goldschmidt A.G,, Th., 125
Good Hope steel complex, 45, 100,
261, 273; loans to, 42-43, 71;
operations of, 104, 105-106, 246
Goodyear Tire & Rubber Com-
pany, Incorporated, 296
Gordon, Colonel, 59, 60, 109
Goring, Herbert L. W., 125
Goring combine, Hermann, 72,
lor, 273

Government, national and private
interests in, 264-266, 268-269,
279, 282, 288, 289-290, 295-300

Grace, Eugene G., 48

Grassett, General A. E,, British
head of SHAEF G-5, 88

Great Britain, Dtisseldorf Agree-
ment, 5, 18, 159, 171-172, 174;
Ministry of Economic Warfare,
22; seizure of Ruhr industries,
153, 154; Labor Party, 154, 158;
blocks reorganization of Ger-
man combines, 154-155; nego-
tiations with State Department
on decartelization law, 165; po-
sition on decentralization of
German economy, 169-174; po-
sition on Ruhr, 180, 184; position
on international control of Ger-
many, 181, 184; negotiations for
decartelization law, 195, 198,
199, 227-228; reorganization of
German banks, 198. See dso
Bizonia

Great Gustav, gun of World War

n, 83-84

Gulf Oil Company, 296
Gutehoflnungshiitte Niirnberg

A.G. See Good Hope steel

complex

HabER-BoSCH synthetic NmiATE
PROCESS, 62

Hadir, Luxembourg steel com-
pany, 40
Hague, The, 133

Hague Memorandum, I.G. Farben-
Standard Oil agreement, 78-79,
80

Hahn, Dr., 77

Hamberg, Harald, head of Swe-
dish SKF, 268
Haniel, Alfred, 105-106
Haniel, Franz, 106
Haniel, Karl, 105

Haniel & Cie,, G.m.b.H,, Franz,
xoi, 105

Haniel family, 99, 100, 104, 105-
106. See dso Good Hope steel
complex

INDEX

313

Hansa mine, 94
Hardy & Company, 122
Harriman, W. Averell, Secretary

of Commerce, 218, 222, 265
Hartford Bank and Trust Com-
pany, 141
Harz Mountains, 78, 94, 97
Haspe, armor-plate mill at, 188
Hasslacher, Johannes Jakob, 100,
127

Haushofer, Professor, 291

Hawkins, Phillips, second chief of
Decartelization Branch, 229, 234,
255, 258, 259, 260, 262, 272;
quoted on Henschel combine,
256; report of Ferguson Com-
mission on, 276; resignation,
277

Hays, General George P., 262-

263, 270, 271

Hene, Professor, 115

Henkel & Cie., soap and deter-
gents combine, 100, iii, 113,
116-117

Henle, Giinther, 274

Henschel und Sohn, 43, 124; pro-
posed reorganization of, 246,
247; investigation of, 255, 256,
260

Henschel Flugmotorenbau,

G.m.b.H., 124
Hesse-Nassau, royal house of, 109-

no

Hessische Bank, 190. See dso

Deutsche Bank
Hester, Brigadier General Hugh

B., 238

Heyden Chemical Corporation,
212-213

Hilldring, General John H., 153-

Himmler, Hemnch, 50, 51, 54, 71,

88

Himmler Fund, 87, 90, 120, 133,

158, 204, 209. See dso "S*' ac-
count

Hindenburg, Paul von, 6

Hitler, Adolf, 72, 100, 118, 136,
229, 295; co-operation of Ger-
man bankers and industrialists
with, 6, 18, 83-85, 121; relations
v/ith Krupps, 83-85; quoted, 108

Hitler Youth, 78

Hochst, I.G. Farben plant at, 189

Hoesch A.G., coal combine, 110,
125, 273 ^

Hoesch family, 125

Hoffman, Paul G., 275

Holland. See Netherlands

Holzmann A.G., Philip, 127

Honigman, Alfred, 100.

Hoover, Calvin B., report on res-
toration of Germany, 183

Hoover, Herbert, report on Ger-
many, 228-229,

Houdremont, Edouard, 90

Howard, Colonel Graeme K., 24,
25, 164

Howard, Frank A., 77, 78-79, 80-
8r

Huber, Willi, 100

Hugenberg, Alfred, 100

Hull, Cordell, 14, 155

Humphrey, Don, quoted on dis-
position of German coal, 182-
183; on Potsdam Agreement, 183

Hynd, Honorable John, 165

LG. Farbenindustrie A,G., 57, 71,
75, 84, 100, 110, 113, 122, 127,
128, 292; formation of, 4, 42, 43,
65; Bruning*s relations with, 6;
agreement with Sterling Prod-
ucts, Inc., 7-8, 15; agreement
with Rohm & Haas, lo-ii; op-
erations of, 14-15, 129, 130, 131;
organization, 30; recovery of
records, 57-61, 74, 77; poison-

INDEX

gas production, 59-60, 81; New
Order plans, 61, 68-70; patent
problems, 62-63, ^^3~^M9 i^^ter-
views with management, 64;
concealment of foreign opera-
tions, 64-68; arrangement with
Standard Oil of New Jersey, 77-
81; connections with United
Steel, Toi; assets and employees,
104; disposition of properties,
178; Leuna works, 181; reorgan-
ization of, 186-187, 188-190,
230; postwar penicillin produc-
tion, 211-212; problem of trade-
marks, 215-216
I.G. Farben Control Office, 163, 186
ligner. Max, financial chief of I.G.

Farben, 64, 77, 241
Ilseder, steel combine, 273
Imperial Chemical Industries, Ltd.,
55. 58,

Imports, U.S. resistance to, from
Germany, 218

Industrial Products Trading Cor-
poration, Zurich, 271-272

Industrial Revolution, Luxem-
bourg, 38

Industrialists, meeting of British
and German, at Diisscldorf, 5,
18, 159, 171-172, 174; co-opera-
tion with Hider, 6, 18, 83-85,
121; private agreements of
American, British, and German,
7; machinations of German,
after World War I, 33-34;
Franco-German collaboration in
interwar period, 34; proposed
listing of German, 75; Rhine-
land, 106-108

Industry, wartime study of Amer-
ican and foreign, 9-12, 13-*! 4;
German control of international,
41-43, 144-145

Industry, German, control of, 18,

128-130; subsidization of, 66;
capital goods, 106-108; decen-
tralization of, 1 54-- 1 62, 194;
effects of Allied bombing, 161-
162, 179; division of, in Allied
zones, 162; disposal of surplus
plants, 176-177, 179; Level of
Industry Agreement, i8o, 182-
184, 191. See also Decarteliza-
tion Branch

Industry Branch, 177, 187, 192,
2x3, 2x4, 219; reorganization of
I.G. Farben, 178, 189, 211; pro-
posal for disposition of Roges
stock, 217-218

Inflation, post-World War I, in
Germany, 30

Inland Steel, 275

Insurance, spread of risk, 19-20;
as source of wartime informa-
tion, 20-24

Intelligence reports, 143

Inter-Allied Commission Super-
vising German Disarmament, 14

International Bank for Recon-
struction and Development, 280

International Business Machines
Corporation, 207

International Chamber of Com-
merce, 1 01, 136, 193

International General Electric, 146.
See also General Electric Com-
pany

International Harvester Company,
219, 296

International Monetary Confer-
ence, Bretton Woods, 280-281

International Monetary Fund, 280

International Sodium Cyanide Car-
tel, I I 4-1 15

International Steel Cartel, estab-
lishment of, 33, 40, 42, 44;
Comite des Forges, 34, 35; ex-
amination of files, 37, 39-40, 41,

INDEX

46-47; membership, 44, 46, 48;
terms, 44-45, 47-48; German
control of, 45-46, 49; United
States participation, 46-49; meet-
ing of Joint Co-ordinating Com-
mittee, 1938, 48-49; dissolution
of, defeated, 279-280. See also
Iron and steel industry

International Telephone and Tele-
graph Corporation, 10, 127, 209-
210, 214, 296

International Trade Organization,
282, 285

Internationale Rohstahlgemein-
schaft. See International Steel

Cartel

Investigation of Cartels and Ex-
ternal Assets, Division of, 153,
170

Investigations, Meader report, 221-

222, 225-226; Reed report, 222-

223, 226-227; Hoover report,
228-229, ^3^> business execu-
tives, 232; Brown report, 243-
244; Ferguson Commission,
275-278

Iran, 297

Iron and steel industry, in Ruhr-
Lorraine area, 28-31, 34; Franco-
German collaboration in, 34, 36;
Luxembourg, 38-40; German
production, 43; organization of,
in Germany after World War I,
43-44; investigation of, in Ruhr,
85-88, 91-108; British depend-
ence on Ruhr, 180; production
in postwar Germany, 184; pro-
posed reorganization of, 261,
272-275; postwar developments
in, 285-288. See also Interna-
tional Steel Cartel

Isseks, Samuel S., 275

Italy, German vested interests in,
18-19

315

ITO. See International Trade Or-
ganization

JCS 1067, directive on future of
Germany, 157-158, 162, 233-234
Johnson, Edd, 230

Kaiser, Henry 2 S3, 28^-288

Kaiser Wiihelm Museum, 58

Kali-Chemie A.G., loi, 125

Kearney, Andrew T., 275

Kehrl, Hans, Chairman of Phrix
Works, 71, 72, 131, 132, 216

Kellam, Colonel John R., 76, 77, 93

Kellermann, Hermann, General
Manager of Haniel interests,
104-105

Kennecott Copper, 296

Keppler, Wiihelm, Hitler's eco-
nomic adviser, 54, 72, 124

Keppler Circle, 72, 87

Kern, Gordon, 209-210

Kern, Martin E., 248-249

Kiehi, Johannes, 100, 127, 135

Kilgore, Harley M., 88, 187, 200,
221; quoted on postwar German
industry, 163-164

Kilgore Committee. See War In-
vestigating Committee

Kimmich, Karl, 100

Kindiebcrger, Charles P., 213

Kirby, Richard, 242

Kirdorf, Emil, 44

Klockner, Florian, 30

Klockncr steel combine, 100, lor,
125, 273

Knepper, Gustav, 100

Knieriem, August von, chief legal
counsel of I.G. Farben, 64, 77, 79

Kobre, Samuel L., 261

Kocke, Gustav, 97-98

Koerner, Paul, 72

Konsbruck, Guill, Economic Min-
ister of Luxembourg, 280

3i6 IN]

Kontinentale Ocl A.G., 124

Koppers, 296

Krauch, Karl, 64

Kreuter, Alexander, 205-208

Kronberg, Germany, 73

Kronberg Castle, 109

Krupp, Bertha, 85

Krupp A.G., Friedrich, 85

Krupp von Bohicn und Halbach,
Alfried, sponsorship of Nazis,
83, 84-85

Krupp von Bohlen und Halbach,
Gustav, 30, 44, 71; sponsorship
of Nazis, 84-85; quoted on
Fiihrer, 91

Krupp Works, 8x, loi, no, 252,
273; loans to, 42-43, 71; records
of, 78, 93, 94; symbol of German
militarism, 82, 83-85; relation of,
to Nazi state, 83-85; foreign
operations, 91-93

Krupfv-Nirosta Corporation, 91-93

Kuhn, Loeb interests^ 296

Kunstseide Ring, synthetic textile
factories, 71, 131, 135

Labor Fron% enterprises of, 122-
123

Labor Front Bank (Bank der
Deutschen Arbeit) ^ 122

Labor Party, British, 154, 158

Labor unions, German, Allied at-
titudes toward, 180

Lada-Mocarski, V., 68

Latin America, LG. Farbcn in, 8;
German insurance companies in,
22; purchase of trade -mark
rights, 215

Laurent, Captain Francis W,, 230,
260, 261, 262

Laux, Colonel, 153

Law No. 9, Control Council, disso-
lution of LG. Fatben combine,
215

EX

Law No. 56, decartcHzation, 228,
229, 231, 232, 246, 247, 256-257,

258, 273

Law No. 75, reorganization of
German coal and iron and steel
industries, 272-273

Laws. See Antitrust laws; Licens-
ing laws

Lawsuits. See Antitrust suits

Legal Directorate, 170

Legal Division, 170, 171

Lemaigrc-Dubreuil, Jacques, 251,
252

Leuna works, LG, Farben, x8t
Level of Industry Agreement, 180,

182-184, ^9^
Lever Brothers, 116
Leverkusen, LG. Farben plant at,

75

Levi, Edward H., 8

Licensing law^s, delayed repeal of,
in Germany, 219-220

Lichtenstein, role of, as go-be-
tween, 137

Liddiard Sergeant Ed, 97

Lindemann, Carl, 128

Lloyd's group, insurance compa-
nies, 20, 23

Loans, to Germany after World
War I, 30-31, 33, 42-43, 53, 70-
72. See also Dillon, Read &
Company; Reconstruction Fi-
nance Corporation

Locomotives, production of, in
Germany, 43

Loot, recovery of Nazi, 58-59, 73;
SS, 121; collection of, in Ger-
man-occupied countries, 123

Lorenz A.G., C, 209

Lorraine, 28; steel indusUy, 29-30;
Briey Basin, 34, 35

Louis, Dr. Martin, 93

Lovett, Robert A., 265

Luer, Carl, in, 113

IN

Luneburger Heidc, firing range
in, 87

Luxembourg, Grand Duchy of,
study of records, 37; resources,
38; steel industry, 38-40; role of,
as go-between, 137; position on
dissolution of International Steel
Carte], 280

Lytdeton, Sir Oliver, British Min-
ister of Production, no

McCloy, John J., United States
High Commissioner for Ger-
many, 277, 278

McKim, Ed, 89

McKittrick, Thomas H., Presi-
dent, Bank for International
Settlements, 280, 281

MacQuaide, Desmond, 133

McSherry, General Frank J.,
Deputy head of SHAEF G-5,
88, 89; Director of Manpower
Division, Berlin, 162, 163

Maginot Line, 35

Magnesium, German- American
prod action agreement, 12

Maiony, General Harry L, 75

Maltzan, Baron Freiherr Edouard
Otto von, 241

Management, corporate, 289

Manes, Rene, 54, 55, 96

Mannesmann, Max, 95

Mannesmann, Reinhardt, 95

Mannesmann Rohrcnwerke A.G.,
pipe and tube combine, 42-43,
81, loi, 127, 130, 273; search for
records, 78, 87, 94, 96, 98; oper-
ations and growth, 94-99

Mansfeld A.G., 125

Marino, Virginia, 259

Maritime Commission, opposes
curbing insurance practices, 22

Markets, recapture of control of,

EX 317

by Germany, 42; division of,
after World War I, 264

Marshall Plan, 183, 184

Martin, Peter V., Deputy Director,
Economics Division, 200

Marx, Paul, 100, 125

Match monopoly, 257

Matthicnson, Ernst, quoted on dis-
mantling program, 239

Meader, George, report on U.S.
Military Government in Ger-
many, 221-222, 225-226

Mellon interests, 296

Mendelssohn Bank, 249

Merck, E., Darmstadt, 213

Merck & Company, penicillin pro-
duction, 213, 233

Merck, Fink & Company, Hitler^s
personal bankers, 100, 122

Merkers, Germany, 59

Merkers mine, 121

Metal industry, go-betweens in,
116-117, ^^^^ Iron and steel
industry

Metallgesellschaft A.G., 90, 122,
T25; discovery of records, 73-74,
109; operations of, iio-iii, 112-
113; directorate, in; war prep-
arations, 112; stockholders, 113

Metals Reserve Corporation, ad-
vance to Alcan, 284

Mey, Karl, 141

Meyer, Aloyse, Chairman of Inter-
national Steel Cartel, 40-41, 49,

279

Meyer, Emil, 128
Meyer, Heinrich, 274
Midland Bank, London, 141
Military Affairs, Senate Commit-
tee on, 88
Military Government for Germany
(U.S.), headquarters, 166; ad-
herence to old lines, 167-168;
problem of decentralization of

INDEX

318

Gcxman economy, 168-174, 175-
179; dissension in Economics
Division, 175-178; rumored in-
vestigation of, 200, 201; reiaxa-
tion of policies and controls, 215-
220; Meader report, 221-222,

225- 226; Reed report, 222-223,

226- 227; Hoover report, 228-
229, 232; report of business ex-
ecutives, 232, 233; Brown report,
243-244; Ferguson Commission,
275-278; laboratory for study of
government in business, 291-295

Military Government Laws, No,
56, decartelization law for Bizo-
nia, 228, 229, 231, 232, 246, 247,
256-257, 258, 273; No, 75, reor-
ganization of German coal and
iron and steel industries, 272-

Mills, Sir Percy, Director of Eco-
nomic Affairs, British Control
Commission, 90-91, 96, 154-155,
165, 169-*! 75 passim, 180, 224

Minette ore, discovery of, in Lux-
embourg, 38

Minor, Clark, head of Interna-
tional General Electric, 140, 147,
148

Mitchell, Hugh B., 89

Mitchell, Norman, 275

Mitteldeutsche Stahiwcrke. See
Flick steel complex

Mix 6c Genest A.G., 209

Monahan, Francois, 207

Mondon, Herbert, 274

Money, regulation of value of, 1 19-
120; reform of German cur-
rency, 225

Montgomery, Field Marshal Sir
Bernard Law, 26

Morgan, J, Pierpont, 127

Morgan & Company, J. P., 127

Morgan interests, 265, 296

Morgenthau, Henry, Jr., 156
Morgenthau Plan, for reorganiza-
tion of Germany, 156, 157, 185
Mosler, Edward, 100, 128
Mun, Marquis Gabriel de, 207
Munich Reinsurance Company^ 23,
100

Munich remsurance pool, 20
Murnane, George, 249, 250
Murphy, Robert D., United States

Political adviser in Germany^

170, 198

NAKIB, Bosch holding company^
249

National Association of Manufac**

turers, 194
National City Bank of New York,

127, 194, 207
National Foreign Trade Council,

Nationalism, German, postwar

support of, 244

Navy Department, 13

Nazi Party, relations with finance
and industry, 6, 18, 83-85, 121,
128-130, 291, 295; financing of
war program, 11 8-1 21, 122-123,
128; removal of leaders from in-
dustry and public life, 157-158;
plans for future bid for power,
164-165; problems of, under
Military Government, 168; in
postwar business management,
185. See also Gcrmiiny

"Nedinsco" firm, 252

Netherlands, German vested inter-
ests in, 18-19; ^^^^
between, 137; requests for Ger-
man exit permits, 205, 207-208

Netherlands Military Administra-
tion, 133, 134, 136, 139

Neu/ Yor\ Herald Tribune, 53

Neu/ Yor\ Times, 230, 257; cited

INDEX

on Economics Division, 225;
quoted on American activities in
Germany, 225; on tour of busi-
ness executives, 232
New York Trust Company, 249
Nirosta Corporation, 91-93
Nitrates, 62

Nitschke, Robert A,, 268
Nixon, Russell A,, 170, 176, 231,
238

North American Rayon, 132, 135-
136

N» V. Philips Gloeilampenfabrie-
ken. See Philips Electric Lamp
Works, Incorporated

O'Brian, John Lord, General
Counsel of War Production

Board, 13

Occupation of Germany, policy
for, 28; defeat of, 235-244; as
laboratory for study or govern-
ment in business, 291-295

Ocean Chemical Company, 115

OMGUS. See Military Govern-
ment for Germany (U.S.)

Opel A.G-, Adam, General Motors
German subsidiary, iii

Ophuls, Major Ernst C, 90, 93, 96

Optical glass, German-American
working arrangement, 11-12

Ordinance "No. 78, dcatrtdizsttlon
law for Bizonia, 228

Ore and Chemical Corporation,

2T2

Osram, G.m.b.H., Kommandit-
gesellschaft, 139, 141, 145-147

Outwater, J. O., 49

Oxborrow, Brigadier Caton C,
British decartelization chief, 195,
227, 228, 272

pAHLKE, Max, 98

Papen, Franz von, 6, 52, 241

3^9

Patents, German use of, 61-63;
Standard Oil suit for recovery
of, 77-81; Krupp, 91-92; Henkel
& Cie., 116-117; Philips-Teie-
funken, 143-144; problem of, in
Germany, 197, 222-223
Patterson, Robert P., 13, 232
Patton, Genera! George S., 58-59,
168

Pearson, Drew, 274

Pembroke Chemical Corporation,

212

Penicillin, problem of, in Ger-
many, 210-213, ^33

Perkins, Milo, Executive Director,
Board of Economic Warfare, 9

Pcrmancnte Metals, 283

Pfeiffer, Carl, 128

Pferdmenges, Robert, Director of
United Steel, 100; postwar nego-
tiations with France, 241

Pferdmenges & Company, 100,
lor, 122

Philips, A, F., 147

Philips, Frits, 144

Philips Electric Lamp Works, In-
corporated, 22; operations of,
139-147; State Department and,
141-142

Phiiipsborn, Major Martin, 97

Phoenix Works, 30, 99

Phrix Works, cellulose wool, 131

Pietsch, Albert, 44

Pilisbury, Colonel, Control Officer
for I.G. Farben, 164, 186

Plant Site Board, 286

Plastic sheets, international pro-
duction agreement, lo-ii

Pleigcr, PsLul^ head of Reich Coal
Association, 72, 132

Pocnsgen, Ernst, Chairman of
United Steel, 40, 41, 44, 45, loi,
102-103

Pocnsgen family, 95

320

INDEX

Pohl, Oswald, SS director of con-
centration camps, 120, 121

Poison gas, production of, by I,G.
Farben, 59-60; experiments on
slave laborers, 81; plant at Gen-
dorf, 187

Policies, Allied postwar, in Ger-
many, 27-28; relaxation of, 215-
220; clashes in U.S. Military
Government, 221-222; integra-
tion and co-ordination of Ger-
man internal economy, 267;
defeat of x^merican, for Ger-
many, 275-278, 279, 282

Poftugai, ex-Niizis in, 2S1-2S2

Post-wars, 235

Potsdam Agreement, 158-162, 168,

179, 180, 183, 210, 229
Procter & Gamble, relations with

American Hyalsol Corporation,

116, 117

Production, search for German
bottlenecks, 9-10; restriction of,
by international agreement, 10-
11; American, in wartime, 17;
of German heavy industry, 1928,
43; of capital goods in Ger-
many, 107-108; stimulation oi
German, 214-215; war, 297-298

Property Division, creation of, 255

Puender, Hermann, President of
Executive Council, Bizonal Eco-
nomic Administration, 273-275

Puhl, Emil, deputy head of Reichs-
bank, 118, 120, 121, 278, 280,
281 ) 282

Railway system, Nazi workmen
removed, 168. See also Trans-
portation

Rains, Ed, 97

Rand Mines, 115

Rasche, Karl, iii, 112, 113, 121,
128

Rassbach, Erich, 249

Rathbun, Richard R,, 261

Raw materials, allocation of, in
postwar Germany, 177, 213-215;
control of, in Germany, 216

Raw Materials, Advisory Commit-
tee on Questions of, 72

Reconstruction Finance Corpora-
tion, dollar credits to Germany,
213-214, 216; loans to Reynolds
Metals, 284; loans to Kaiser, 286,
287-288

Reconstruction Loan Corporation,
242

Reed, PhiJjp D., Chsirm^n, Gen-
eral Electric Company, 136, 193-
194, 265, 282; mission to Ger-
many, 222-223, 226-227

Reemtsma, Philip, 127

Reemtsma cigarette monopoly, 127,
257

Reich Association for Artificial

Fibers, 131
Reich Association of German In-

dustry, 85

Reich Coal Association, 132

Reichert, Dr., quoted on Interna-
tional Steel CsLrtelf 46

Reichsbank, storage of recovered
gold and valuables, 73; opera-
tions of, 118, 253-254; handling
of SS loot, 1 20-1 2 1

Reichsgruppe Industrie, t8, 40,
123, 268; economic collaboration
of Germany and Britain, 96,
171-172

Reichs-Kredit-Gesellschaft, opera-
tions of, 122, 123-124
Reichsvereinigungen, 131-132
Reichswerk A.G. Herman Goring,
128

Reims, SHAEF headquarters, 88
Reinhardt, Friedrich, 125
Reinsurance. See Insurance

IN

Reorganization. See Decartelization

Branch

Reparations, German, after World
War I, 33; problem of, 159, 160;
Allied positions on, 1 80-1 81,
187; dismantling program^ 214-
215, 238-239
Reparations Division, 163
Replacement agreements, 215
Report on German Cartels and

Combines J 230, 231
Report on Germany (Brown), 243-
244 ^

Republic Steel Corporation, 47, 48,

164, 173, 285, 296
Restitution Branch, 193
Reusch, Paul, General Manager of

Haniel properties, 45, 104, 2S0
Renter, Wolfgang, 127
Reynolds Metals, 283-285
RFC. See Reconstruction Finance

Corporation
Rhein-Elbe Union, participant in

United Steel combine, 99
Rheinische Stahlwerke, participant

in United Steel combine, 100
Rheinmetall-Borsig, armament

firm, 87, 100
Rheinpreussen, coal-mining firm,

105-106

Rhenish-Westphalian Coal Syndi-
cate, 100, 1 01, 105, 273

Rhenish-Westphalian Electric Com-
pany, 100, 1 01, 273; loans to, 71

Rhineland, industrialists in, 6, 106-
108; effect of Allied bombing,
161-162

Ribbentrop, Joachim von, Nazi
Foreign Minister, 53, 209

Richards Chemical Company, 116

Richter, Hermann, Chairman of
Henkel & Cie., 116

Ring. See Kunstseide Ring

Ringer, Fritz, 77-80

EX 321

Rio Tinto mines, no

Ritchie, William, 165
RKG. See Reichs-Kredit-Gesell-
schaft

Robertson, Sir Brian, British Mili-
tary Governor, 238, 274

Rochling, Christian, 35

Rochling, Hermann, 35-36

Rochling, Robert, 35*^36

Rochling family, 34-36, 90

Rochling plant, 42-43

Rockefeller interests, 296

Rodange, Luxembourg steel com*
pany, 40

Roehnert, Helmuth, 128

Roesler, Oswald, 127

Roges, Nazi stock-piling corpora-
tion, 217

Rohm & Haas, agreement with Du
Font and f.G. Farben, lo-ii

Rollins College, 136

Roosevelt, Franklin D,, quoted on
I,G. Farben and economic war-
fare, 14; on economic warfare,
28, 80; position on decentral-
ization of German economic
power, 155-156, 157; attempt to
control business activities, 264;
cited on occupation of Germany,

Rowak Handelsgcsellschaft, barter
agency, 124, 217

Royall, Kenneth C, Secretary of
the Army, 275

Ruhr, struggle for, 28; steel in-
dustry after World War I, 28-
31,* occupation ofy by France,
1923, 32; British occupation of,
76, 153, 154; investigators* head-
quarters in, 82-83; investigation
of steel industry, 85-88, 91-108;
effect of Allied bombing, 161-
162; disposal of heavy-industry
plants, 179; Allied positions on.

322 IN

i8o; postwar steel production,
184; Steel Trustee Association^

273-275

Russia, position on reorganization
of Germany, 159, 169, 171;
relations with German labor
groups, 180; position on Ger-
man reparations, 1 80-181, 187;
on unification of Germany, 181-
182, 238; negotiations for de-
carteiization law, 195, 196, 198,
199, 227

Riistungskontor, corporation for

handling scarce and strategic

materials, 128
RWE. See Rhenish-Westphaiian

Electric Company
RWKS. See Rhenish-Wcstphalian

Coal Syndicate
Ryan, Lieutenant Colonel E.,

212

*'S" ACCOUNT, 55, 56, 209, See
also Himmler Fund

Saar Basin, Rochling family dom-
ination, 35-36

Sabotage, business arrangements
as, 12; German, in United States
in World War I, 52-53

Sacks, Alexander, 24, 54, 55, 60-
61, 259; cited on Ruhr steel in-
dustry, 261-262; quoted on fail-
ure of American reorganization
program in Germany, 277; dis-
missal and reinstatement, 277-

278

Sadowski, George G., 262
St. Claire, Colonel W. K., 86
St. John's College, 3, 5
Salvarsan, 62-63
Salzdetfiirth A.G., 10 1, 125
Sarin, German superpoison, 59
Saudi Arabia, 297

EX

SCAF 239, Eisenhower*s policy

cable, 25, 37
Schacht, Hjalmar, head of Reichs-

bank, 72, 104, 118-120, 241, 280;

plan for postwar German recov-
ery, 242-243
Schacht plan, 242-243
Schering A,G., chemical combine,

100, loi, 125, 212, 213
Schill, Emii, President of Krupp-

Nirosta, 92, 93
Schioss Friedrichshof, 73
Schlosser, Hermann, in
Schmitz, Geheimrat Hermann,

head of LG. Farben, 64, 77, 100,

III, ti2, 127
Schncider-Creusot interests, 207
Schniewind, August, 242
Schnitzlcr, Baron Georg von, 55-

57, 64, 68, 74, 133, 278
Schott Works, Jena, 11
Schroder, Baron Bruno von, 51
Schroder, Baron Johann Heinrich

von. See Schroder, J. Henry
Schroder, Baron Kurt von, 49-54

passim, 71, lor, 105, 131, 132,

135, 209, 280
Schroder family, 51
Schroder, Helmuth W. B., 51
Schroder, J. Henry, 51
Schroder & Company, J. Henry,

London, 51
Schroder Banking Corporation,

J. Henry, New York, 25, 51,

53, 67-68, 106
Schroeder, Gerhard, 274
Schultheiss brewing firm, 257
Schuman, Foreign Minister, 241
Schuman plan, 243
Schiirmann, Krupp director, 93
Schwcinfurt, Germany, industrial

plants at, 10; bombardment of,

254

Semmlcr, Johannes, 242

INDEX

Sempell, Oskar, xoo

Sergent, Rene, 36

SHAEF, Financial Branch, 17

Sheets, for German hospitals in

American zone, 216
Ship sailings, German information

oty in wartime, 19-20
Siemens, Carl Friedrich von, 100
Siemens, Hermann von, loo-ioi,

Siemens & Halske electrical equip-
ment combine, 81, 90, 100, loi,
1^7* 130. 139. M5» 214; agree-
ment with Bcndix and Zenith,
ij; loans to, 71

Silberwiese mine, 94

Singer Sewing Machine Company,
219

Sippell, Karl Ernst, 127
SKF. See AB, Svenska KuUager-
fabriken

SKF Industries, Incorporated, 253,

SKF Steels Incorporated, 253
Socicte dc Credit Intercontinen-
tal, 207

Sohl, Giinther, 274

Solvay & Cie-, 71

"Sonderkonto S,'* 54, 55, 56, 209.
See also Himmler Fund

South America. Sec Latin Amer-
ica

Southern Cross, Wenner-Grcn's
yacht, 251

Soviet Union. See Russia

Spa, Protocol of, 30. 32

Spain, mining enterprises, no; ex-
Nazis in, 281-282

Spanish Morocco, no

Spcer, Albert, German Minister of
Armaments, 84, 201

Spencer, Leland £., memorandum
on revised German policy, 267-
268

Spencer, Richard, 222-223

Springorum, Fritz, 125-126
StaH studies, 221, 255, 256
Stahlhof, Diisseldorf, 85-86
Stahi union Export, ''foreign rela-
tions'* department of United
Steel Works, 85-86
Stahlwerks Verband, German na-
tional steel cartel, 78, 85; re-
named Walzstahl Verband, 94
Standard Eiektrizitats-Gesellschaft,
209

Standard Oil Company, lo, 279,
296

Standard Oil Company of New
Jersey, relations with I.G. Far-
ben, 69; suit against Alien Prop-
erty Custodian, 77-81, 97

Stanley, Oliver, quoted on Diissel-
dorf Agreement, 172, 174

Stars and Stripes, cited on prop-
erty division, 255-256

State Department, handling of
representations and inquiries,
142; negotiations with Foreign
Office on decartelization law,

Stedman, John C, 275
Steel Export Association, 48, 49
Steel industry. See Iron and steel
industry

Steel Trustee Association, 273-275
Stein, Heinrich von, lOi
Stein Bank. See Bankhaus J. H.
Stein

Steinbrinck, Otto, 101
Sterling Products, Incorporated,
agreement with LG. Farben,

7-8, 15
Stimson, Flenry L,, 157
Stinnes, Hugo, Sr., 99, 266
Stinnes, Hugo, Jr., 30, 90, 185,

266

Stinnes Corporation, Hugo, 266

3^4

INDEX

Stinnes Industries, Incorporated,

Hugo, 266
Stinnes interests, 71, 266-267, ^73
Stokes, Thomas L., eked on Ster-
ling Products, Inc. and LG. Far-
ben, 7-8

Stolper, Gustav, German econo-
mist, 228, 229

Stoneware, German sabotage of,
in World War I, 52-53

Stragneii, Dr. Gregory, 212, 213

Strategic Bombing Survey. Sec
Bombing Survey

Stresemann, Gustav, German
Chancellor and Foreign Minis-
ter, 32

Subsidies, of heavy and synthetic
industries, 66; United Steel, 103
Sugar trust, South German, 257
Sullivan & Cromweil, 53, 67, 207,
250

Surplus Property Administration,
286

Sweden, role of, as go-between,

137; ex-Nazis in, 282
Switzerland, bank secrecy law, 67;

American diplomatic position in,

67-68; role of, as go-between,

137; ex-Nazis in, 282
Synthetics, German development

of, 62-63, ^^^i edible, 131
Szymczak, M. S., 233

1 FORCES, 27, 51

Tabun, German super poison, 59
Tariffs, reduction of, 282-283
Tarnung program, I.G. Farben

concealment program, 65, 66
Taylor, John W., 238
Telefunken, German radio com-
bine, 139, 143-144
Tengelmann, Wilhelm, 90
Tennessee Valley Authority, 284,
289

Terbovcn, Gauleiter, 102

Termites, 3

Textiles, resumption of German
production, 216, See aho Cotton

Third Reich. See Germany

Thompson, Richard, 55

Thorns, assistant to Emil Puhl, 121

Thorp, Willard, Assistant Secre-
tary of State for Economic Af-
fairs, 233

Thucydides, 5-6

Thyssen, Fritz, 30, 41, 85, 92, 100,
102

Thyssen group, 99, 273
Tilley, Major Edmond, 77, 97
Times, London, quoted on Diissel-

dorf Agreement, 174
Todd, William B., 49
Toynbee, Arnold, 236
Trade, See International Trade

Organization
Trade and Commerce Branch, 192,

214, 215, 228
Trade associations, concessions to,

in Germany, 107
Trade-marks, T.G. Farben, 215-

216

Trading with the Enemy Act, 192
Transport Division, 167-168
Transportation, German, under

Potsdam Agreement, 160-161
Travel, relaxation of restrictions

on, 208-2T0
Trianon Palace Hotel, Versailles,
meeting of United States and
British Inteiiigence ofHcers, 75
Truman, Harry S., 89, 222, 275
Truman Committee, quoted on

doliar-a-year men, 265
Tubos Mannesmann, Ltda., 98.
See dso Mannesmann Rohren-
werke A.G.
Tungsten carbide monopoly, pros-
ecution of, 269

INDEX

Tunnell, James M., 88
TVA* See Tennessee Valley Au-
thority

Unification, problem of, in post-
war Germany, 1 81-182, 187, 238

Unilever, Ltd*, 116, 219

United Aluminum Works, in,
112

United Fruit Company, 296

United Industrial Enterprises, In-
corporated, 71, 124, 128, 273

United Rayon combine, 71, 75,
127, 131-136

United States Commercial Com-
pany, shipments to Germany,
214, 216

United States Group Control
Council, 24; Economics Division,
24-25; Finance Division, 25. See
also Military Government for
Germany (U.S.)

United States Rubber Company,
296

United States Steel Corporation,
42, 47, 48, 127, 275> 285-286

United Steel Works, 40-43 passim,
no, 125, 130, 136, 273, 292;
formation and operations, 32,
96, 99-100, 1 01-104; loans to,
71; headquarters in Diisseldorf,
85; records, 94, 99; Deutsche
Erdoel holdings, 95; affiliations
of supervisory board and direc-
tors, 100-10 1 ; assets and em-
ployees, 104

Vaughan, Major, 88
Verdun, 31

Vereinigte Aluminium Werke

A.G., III, 112
Vereinigte Kugellagerfabrikcn

A.G., operations of, 246, 247,

251-254, 256; investigation of,
260, 268-'269

Vereinigte Stahlwerke. See United
Steel Works

Versailles, meeting of United
States and British Intelligence
officers, 75

Versailles Treaty, 29, 30, 33, 46,
91; German evasion of, 3^37;
German industry under, 62

VGF, See United Rayon combine

VIAG. See United Industrial En-
terprises, Incorporated

Vichy government, 36. See also
France

Vickers, Ltd., 91

Victoria, Queen, no

Villa Hiigel, headquarters of in-
vestigators in Ruhr area, 83-84,

Visitors, reports of American, in
Germany, 184-185; briefings of,
by Economics Division, 193-
194, 200

Vits, Ernst Helmuth, General
Manager of VGF, 131, 132, 135,
241

VKF, bearings combine. See Ver-
einigte Kugellagerfabrikcn A.G.

Vlissingen, F. H. Fentener van, 99,
loi, 105, 131, 132, 133, 135, 136

Vogler, Albert, Chairman of
United Steel, 30, 71, loi

W>^GNER, Gerhardt, manager of
Mannesmann agencies in United
States, 98-99

Waldhof company, lor

Walker, John, 54-55

Wallenberg, Jakob, 250, 251, 252

Wallenberg, Marcus, 250, 251, 252,

253-254
Walscm, H. F. van, 140

326

INDEX

Walzstahl Verband, German na-
tional steel cartel, 94
War Assets Administration, 286
War Department, 13; Division. o£
Investigation of Cartels and Ex-
ternal Assets, 153, 170; plans for
German economic recovery, 156-

War Investigating Committee^ 143,

221-122, 225-226
War Production Board, 13, 286
War program, financing of, in
Germany, 11 8-1 21, 122-123,
128-130
Washington, D.C., 4
Wason, Robert R., President, Na-
tional Association of Manufac-
turers, 194
Weimar Republic, industry groups

under, 107
Weir, Sir Cecil, president of Brit-
ish economic subcommission,
224, 225, 227
Welier, Seymour, 207
Welsbach gas mande, 145
Weltzien, Hans, 11 1, 113, 125
Wendel family, de, 34, 35, 241
Wenner-Gren, Axel, 251, 252
West, Robert, 54
Westrick, Gerhardt A., 52, 53, 90,
209

Westrick, Ludwig, iii

Wickersham, Brigadier General
Cornelius W., 24, 25, 52

Wilkinson, Colonel Lawrence,
head of Industry Branch, 192,
219, 224, 259, 260, 269; quoted
on German recovery, 200; posi-
tion on cartel policy, 245; report
of Ferguson Commission on,
276; resignation, 277

Wilson, General Arthur C, par-
ticipation in Bosch casc> 270-
271

Wilson, Woodrow, 7, 236
Wilson & Company, 296
Winant, Fred, Director of Trade
and Commerce at Berlin, 162—

163

Windsor^ Duke and Duchess of^

Winegrovi^ers, German, 6

Wingquist, Sven, 251, 252

Winkhaus, Hermann, technical
director of Mannesmann, 94

Wintershail potash combine, 214

Wirtschaftsgruppe, iron and steel,
control of Luxembourg steel in-
dustry, 40

Wohlforth, Robert, 9

Wolff, Otto, 30, 41, 99, I or, 102;
cited on German-French co-
operation, 32

Wolf? complex, Otto, 30, 55, 273

Wolframerz A.G., 93

World War i, occupation of Ger-
many, 28; German sabotage in
United States, 52-53

World War 11, Nazi war economy
in Germany, 11 8-12 1, 122-123,
128-130; business in govern-
ment, 265-266; productive effort,
29 B

Worms et Cie., 206
Wysor, Rufus, 164, 173

Young Plan, 92, 280

Zangen, Wilhelm, General Man-
ager of Mannesmann, 87, 94-

Zeiss, Carl, 252

Zenith, agreement with Bendix
and Siemens, 11

Zurich group, insurance compa-
nies, 20, 21